The government may have shied away from tabling the Pension Fund Regulatory and Development Authority (PFRDA) Bill in the Winter session, but the New Pension Scheme (NPS) would see its membership base expanding significantly in 2010. Public sector general insurers, who lifted a long-standing hiring freeze in 2009, have agreed to bring their new workforce under the NPS, as has Life Insurance Corporation.
Similarly, following the lead of National Aluminum Company (Nalco) Ltd, another public sector unit, NTPC Ltd, is moving its employees’ superannuation pension funds into the NPS.
“It’s always easier for others to join after one PSU takes the lead. Nalco was the test case and once we finalised the modalities to transfer their superannuation pension funds into the NPS, the template was ready. We expect other public sector firms will also evince interest,” a senior PFRDA official told FE. The interim regulator has also written to the department of public enterprises to help other central PSUs bring their workers into the NPS-fold — for pension savings beyond the mandatory contributions at 24% of salary to the Employees’ Provident Fund Organisation.
While PSUs are looking at the NPS, thanks to a pay revision panel recommendation, the finance ministry has been holding discussions with public sector general insurance companies to join the scheme. The five insurers to be approached are New India Assurance, United India Assurance, National Insurance Company, General Insurance Corporation and Oriental Insurance.
“All five have agreed in principle to join the NPS. We are also discussing the option with LIC,” a finance ministry official said. “At present, only about 300 employees would become members of the NPS. But once the general insurance companies begin recruiting on a larger scale, we expect another 20,000 employees to join,” the official said.
The North Block has also been urging public sector banks to transfer their employee superannuation funds into the NPS, and the Indian Banks’ Association has decided ‘in principle’ to move new workers in public sector banks to the NPS. With PSU banks expected to hire at least 1.5 lakh new workers by 2011, the NPS membership base will rise significantly from its current strength of 6.5 lakh members. PSU and insurance firms aside, several of the 21 state governments that agreed to join the NPS are yet to transfer their workers’ contribution records and funds. Currently, only three states have moved into the NPS fold.
While the scheme was opened up to citizens on a voluntary basis in May 2008, around 3,000 workers have signed up so far. Officials attribute the poor response to the intermediaries’ conflict of interests as they earn better commissions selling other financial products. The high record-keeping costs are also seen to be a deterrent.
Though the PFRDA has decided to call for fresh bids for a second central record-keeping agency to break NSDL’s monopoly, reaching the 1 million members milestone is crucial for the PFRDA as it will reduce record-keeping costs by 20%. NSDL has promised to cut annual maintenance charges from the current Rs 350 to Rs 280 and transaction costs from Rs 10 to Rs 6 per transaction. Source:Financial Express