Fixing the NPS | Value Research As far as becoming a retirement solution for private individuals goes, the NPS has a long way to go
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Fixing the NPS

As far as becoming a retirement solution for private individuals goes, the NPS has a long way to go

Last week, I wrote about the passing of the PFRDA bill in these pages. It's good that the PFRDA bill has passed but the development of the National Pension System (NPS) so far is just a pale shadow of the vision that had been outlined in the original document (the OASIS report) fourteen years ago. I got a good volume of response from readers and almost all of that from people who have been trying to make use of the NPS but not succeeding for operational reasons. These are not government employees for whom the NPS works automatically but just private individuals who are trying to utilise as a retirement savings tool.

Dealing with the mechanics of the NPS seems to be a big problem. A typical example is one Kadar M.A. who wrote in from somewhere in Tamil Nadu. I'm quoting his comment extensively because it's quite representative '... I found it very difficult to start NPS. No one was aware of NPS when I went to my SBI branch to start one last year. Instead they were promoting SBI Life insurance product … I opened NPS account in the nearby Head Post Office with the help of a friend working there. I was the third person in that post office to start one. When my online NPS account got locked, I submitted necessary requests to the POP (i.e post office). The in-charge person was clueless about what to do. He dragged things out for more than six months and then said that he had forwarded that details to the NSDL. When I enquired from NSDL they the POP had not forwarded anything. When I complained about the service of this post office to the NSDL, I was advised to change to another POP. Now with difficulty I have changed the POP to another. I have now submitted the request to unlock my account and to get new I-pin and T-pin … my account is locked since last year November'.

One telling fact is that there appears to be no one who seems to have succeeded in opening an NPS account smoothly. Those who go to post offices have to cajole or threaten the staff into opening it or need a contact like the person above. Worse off are those who go to banks because, without exception, they first have to fight off an attempt to be sold a an insurance policy. In fact, banks appear to be using NPS walk-in inquiries primarily as insurance prospects! Many of these salesmen cleverly offer policies with names that have something to do with pension or retirement. For every potential NPS member who successfully runs the gauntlet and actually opens an account, there must be many who go back defeated, some of them having sunk their money in some dubious insurance policy!

Effectively there are two distinct NPSs. One was meant as a replacement for the government's pension system where the goal was to eliminate the government's future liability. This purpose has been achieved. The other part of NPS was meant to create a retirement saving system for the general population. Here, the system has been created but the last mile of taking it to the target population is dysfunctional. This is a great pity because the NPS is easily the best retirement savings option available even though one wishes the options and equity exposure originally recommended were available.

The PFRDA's biggest task must be to fix this part. Within the organisations which are acting as POPs, there's no shortage of people suggesting high sales commissions as a fix, and this view has sometimes found a sympathetic ear even in the PFRDA. One can only hope that it's clear that competing on commissions would be about the worst solution to the problem. Like I wrote last week, the real NPS is yet to be created, and one must hope that the PFRDA proves equal to the task.

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