PFRDA opposed mandatory investments into infrastructure under National Pension Scheme

The pension regulator, PFRDA in April 2011 opposed any form of mandatory investments into infrastructure under the National Pension Scheme (NPS). PFRDA has put forth its opposition stance comes in the wake of the government’s attempt to set up an infrastructure fund with retirement savings. PFRDA reiterated that in pension products the complete market risk is being borne by accountholders, and in such a situation directing investment is not proper on the part of the regulator.

PFRDA demanded that pension fund managers should be left free to invest wherever they feel the risk-reward return is maximum. PFRDA always maintained that any instrument which has investment grade rating qualifies for investment. If the infrastructure debt fund floats investments which have investment grade rating, investments will happen.

The Bajpai committee has been constituted to address the lacunae and define who is the principal stakeholder to play the marketing role and push the product.

PFRDA announced the distribution of NPS through its 3,000 branches of the Union Bank. Union Bank approved to sell the NPS scheme through all its branches as part of efforts to become a onestop-shop for all financial needs.

The PFRDA is attempting to increase the numbers by asking corporates to open accounts on behalf of their employees and deposit part of the wages into the retirement account. PFRDA wants banks to distribute NPS scheme online so that individuals can open an account without going through any hassles.

The NPS’s initial task was to prevent increasing pension liabilities from throwing the government finances out of gear. All government employees who joined after 2003 were made part of the NPS and the government’s defined benefit liability was restricted to employees who joined before that year. Later in 2009, the NPS was opened for every Indian and was meant to be an extremely efficient retirement saving scheme with almost zero charges. While this ensured that all employee contributions went into retirement savings, there was no budget for distribution or marketing. In the absence of the budget for distribution and programming there is no incentive for banks and other institutions which act as points of presence to sell the plan.