Interestingly, PFRDA has proposed that these firms would be exempted from meeting minimum net worth and branch requirements.
PFRDA has proposed to allow public sector undertakings (PSUs), state government entities and corporate firms having a minimum of 300 employees for in-house distribution National Pension System (NPS) through a distribution channel called Point of Presence-Special (POP-Special).
Interestingly, PFRDA has proposed that these entities would be exempted from complying with the prescribed norms for NPS distributors like minimum net worth of Rs. 2 crore, having multiple presence etc.
In the draft regulation, PFRDA said, “PSUs, state government entities and corporate with a minimum employee strength of 300 as on the date of application to the authority and which is desirous of offering National Pension System (NPS) account to its employees may either join NPS through a Point of Presence or may opt to be registered as a Point of Presence-Special without complying with the above eligibility criteria and applying to the authority in the prescribed format by submitting all requirement information and documents. Those employers desirous of offering national pension system to their employees and who do not fall under any of the above shall join the national pension system through the medium of point of presence only. The dispensation given here above is only to offer NPS account in respect of the employees of the employer and its director only.”
A senior official from a pension fund house said that the move will help increase the penetration of NPS. “It’s a welcome move. Such kind of initiative will give a fillip to pension fund industry. Also, it will help increase the penetration of NPS.”
“It is difficult to buy NPS even if investors want it. The proposal to allow PSUs and corporate houses to start in-house distribution of NPS will increase its penetration,” says Suresh Sadagopan of Ladder7 Financial Advisories.
However, some people are skeptical about the PFRDA proposal. “Allowing corporate houses and PSUs may increase mis-selling. NPS is a complicated product. It cannot be sold without analyzing risk appetite and need of the clients. Help of a financial adviser is a must,” says another senior official from a private pension fund house.
Yet another pension fund manager of a private pension fund house is of the view that such move may discourage the existing distribution model. “SEBI has allowed direct plan in mutual funds for savvy investors after many years. NPS is in its nascent stage. Unlike insurance (agents) and mutual funds (distributors), NPS has no individual distribution channel. Currently, the only way to distribute NPS is through POP model. Allowing PSUs and corporate may deter existing distribution channels from marketing NPS due to unattractive incentive model. I believe that the regulator should focus on strengthening the existing distribution channel.”
Though NPS is a low cost and tax efficient investment for retirement savings, it didn’t take off due to poor penetration and unattractive incentive structure.
