The private sector should drive the growth of the National Pension System (NPS), which has grown exponentially over the past five years, in terms of the number of subscribers as well as assets under management, according to a study paper of the PFRDA.
Led by Atal Pension Yojana (APY), the number of subscribers between 2017-18 and 2021-22 more than tripled, while assets under management increased more than fourfold under the impetus of NPS, according to the document. by PFRDA. member Deepak Mohanty.
The Pension Funds Regulatory and Development Authority (PFRDA) regulates flagship product Atal Pension Yojana (APY) and the National Pension System (NPS).
“The annual rates of return of various NPS schemes since their inception, ranging between 9.0 and 12.7% and for the APY at 9.4%, have been very competitive compared to alternative savings instruments in addition to the main benefit of a stable income,” according to the paper.
Since the introduction of the NPS in 2004, and most recently the APY in June 2015, the pension industry has grown in India.
The total number of subscribers has more than tripled from 1.5 crore in March 2017 to over 5.2 crore in March 2022, which is dominated by APY. The total number of APY subscribers increased more than fourfold from 93 lakh to 4.05 crore. Of this number, APY subscribers represent over 78% of the pension subscriber base.
Regarding AUM, pension assets under management more than quadrupled from Rs 1.75,000 crore to Rs 7.37,000 crore during this 5-year period.
In this, the majority of the assets are held by NPS, rising from Rs 1,70,000 crore to Rs 7,11,000 crore, accounting for 96% of the total assets. The remaining 4 percent is provided by APY.
Mohanty said India’s pension sector (NPS plus APY) provides a flexible mode of old age income security not only for wage earners but also for the ordinary person.
“Future expansion of the NPS should come from the private sector both salaried and self-employed.
“Measures to improve pension knowledge, both among policyholders and intermediaries, coupled with a boost from the regulator and government as well as encouraging young adults to join a pension scheme would accelerate our movement towards a pension society,” he said. mentioned.
The document states that these are the early days of the pension industry in India and there is huge room for growth as our per capita income increases further and the country transitions to an upper middle income country.
“Our demographic structure, with a greater proportion of young people, favors a phase of accumulation. As longevity increases, the need for a regular stream of income also increases to alleviate old-age poverty.
Moreover, as the traditional family support system changes with increasing urbanization, there is an even greater need for an independent source of income in old age.”
According to the study, given the budgetary situation, the government could push people towards the NPS, as it has already been done for government employees. Furthermore, as the pension industry progresses, a strong regulatory architecture will be needed to ensure that pension funds are managed prudently while safeguarding overall financial stability.
In this sense, the PFRDA became in February 2014 a statutory regulator of the pension sector.
“The PFRDA has the role of overseeing the pensions industry; and has taken a number of steps to ensure that the intermediaries involved in the relevant pension architecture operate in a transparent manner. The onboarding and exiting of pensioners has facilitated through greater use of technology. While there is a mechanism for expedited redress of retiree grievances, it is further strengthened,” the newspaper adds.
He also highlighted the importance of financial literacy for people to take advantage of the formal financial sector. Having the ability to read or write is not enough for financial literacy, he said.
Moreover, financial inclusion and empowerment will remain incomplete without every member of a family having a retirement account.
In this direction, given the nature of the pension product where the benefit is not immediate, it needs a push from all parties involved, employers, intermediaries, the government and the pension regulator to entice people, especially young adults, to join a pension plan.
“There is immense merit in reaching out to young people, because with small contributions a large corpus could be accumulated given the power of the compound interest rate, providing a substantial stable income in one’s life after work.”
The NPS primarily caters to the retirement needs of employees in the organized sector, including government personnel, while the APY is intended for those working in the unorganized sector.
The PFRDA has stated that the opinions expressed in these articles are those of the author and not necessarily those of the institution.
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