NPS funds seek stable growth, don’t chase spectacular returns: Hemant Contractor, PFRDA

PFRDA chairman Hemant Contractor speaks on new EPS rules, NPS investment norms and why the APY should be expanded

• On higher EPS pension

Earlier the pension was capped at Rs 7,500 but now it can be 50% of the last drawn salary. However, this will cast an additional burden on the employee to contribute more to the Employee Pension Scheme.

Also, if the pension amount has to be increased to 50% of the last drawn salary, and there is a gap in the funds available with the EPFO to pay that pension, how will that shortfall be bridged? If the investments made by the EPS are not able to generate enough funds to sustain the payouts, the burden of payment will probably fall in the lap of the government and impose an additional cost on the exchequer.

• On why NPS does not have a liquid fund
  

The uncertainty in the equity and bond markets is a temporary phenomenon, which has made liquid funds look like a better option. But in the long term, liquid funds can’t generate very high returns. One can shift from equity to gilts and corporate debt funds if he is jittery about the markets. In gilt funds, there is no credit risk, so the money is safe. Liquid funds are not the best suited for a pension fund, which is why we don’t offer this option.

• On why NPS funds don’t invest in small- and midcap stocks

The equity markets are dominated by large-cap stocks. We believe NPS funds should be restricted to these large companies. These are the bigger and well-traded stocks and therefore, safer than mid- and small-cap stocks. Keep in mind these are pension funds, not mutual funds. We are looking for stable growth, not spectacular returns. In search for higher returns, we should not dilute the investment norms.

On tax exemption to income from annuities
We have taken up the issue of tax exemption to annuities with the government. Even the insurance regulator has approached the government on this. If annuities are made tax free, it will give a big boost to the pension sector. Let’s hope the government takes a positive decision.

• On proposal to allow shift from EPF to NPS

Though this was announced more than three years ago, the enabling legislation has not been put into place yet. Even if employees and companies covered by the EPFO want to shift to the NPS, they can’t unless there is a change in the law. Till there is a statutory change, the proposed shift will not happen.

• On the multiple charges levied by NPS

Cost containment is a very essential part of any long-term scheme. NPS is one of the cheapest investment products. Sure, there are charges on contributions but they are very low and are capped at Rs 1,000. Mind you, this is a transaction charge and only levied once. If you look at the overall costs of the NPS, they are far lower than those of other products. Also, account maintenance charges have come down by half after we appointed one more central record keeping agency.

• On broadening the Atal Pension Yojana

The Atal Pension Yojana gives guaranteed pension on retirement but it is open to people between the ages of 18 and 40 years. We want the age to be increased to at least 50 so that more people can join. The pension slabs also need to be increased. If you get Rs 4,000-5,000 about 20-30 years from now, it will not really amount to much. So we want to add a new slab of Rs 10,000 to the existing monthly payout.