Wednesday, November 13, 2013

While Tamil Nadu had signed up with the PFRDA to shift their employees to the NPS in April 2003, Maharashtra signed up in November 2005

Almost 10 years after signing up for the (NPS), Maharashtra and Tamil Nadu are yet to remit pension contribution on behalf of their new employees to the NPS system. Many other states, too, have failed to pay their dues regularly, according to the sector regulator, Pension Fund Regulatory and Development Authority ().

While Tamil Nadu had signed up with the PFRDA to shift their employees to the NPS in April 2003, Maharashtra signed up in November 2005. Except West Bengal and Tripura, all state governments have given their consent to be part of the new pension regime. Kerala is the latest entrant, having signed up in April this year.

"I have no means to ensure compliance from state governments," PFRDA chairman Yogesh Agarwal has told Business Standard. The recently-passed pension legislation does not give PFRDA enough power either to ensure that governments regularly remit their pension contribution. While Maharashtra and Tamil Nadu have not paid anything at all, track records of other state governments are not good either.

Maharashtra has decided to join the new pension scheme (NPS), with its concerns having been addressed by the Centre, says a senior government official. The main concern was about the periodic withdrawal of money by employees, especially those belonging to the Class IV category, the official says. The second concern was about high fees charged by the  Ltd for putting in place necessary infrastructure.

According to the official, the Maharashtra government currently deposits the pension amount in public accounts so that employees get interest. The amount, about Rs 1,500 crore, will be transferred to the PFRDA-appointed fund manager, the official adds. Tamil Nadu, too, is in the process of making the policy, says a government official. He has, however, clarified the government is yet to decide whether to remit or not.

"In one month, states' contribution is 100 per cent, the next month it falls to 50 per cent and the next it becomes zero," says Agarwal. He says he has been constantly corresponding with state governments to ensure regular compliance, but to no avail.

According to him, while state governments regularly deduct employees' contribution to the new pension fund, they don't remit the entire corpus to NPS system regularly. The NPS covers all government employees who have joined the service since 2004.

Ashish Kumar, general manager, PFRDA, says the entire process involves states signing up with the PFRDA, setting up a nodal office and registering all subscribers. Once that is done, they are required to remit their pension contribution, which is then transferred to designated fund managers. The delay in remitting money means all government employees who are now part of defined contribution rather than defined benefit pension regime, will earn less on their contribution to the pension fund.

"Till the time money is lying with state governments, they pay an interest at par with the prevailing rate on government security, which is roughly around eight per cent. Whereas, our rate of return has been 12-14 per cent," says a top PFRDA official. The difference in rate of return may prove to be bone of contention between employees and governments, if the retiring employees ask for return at par with the NPS retrospectively, he says, adding it will increase litigation and also the financial burden of state governments. Incidentally, the NPS was started with a view to reducing the future pension liabilities of governments. However, non-compliance on the part of some state government and irregular compliance by some others may defeat the very purpose. And employees who have been asked to switch to the defined contribution pension regime may also suffer in the bargain.

However, PFRDA officials say records of some state governments have been satisfactory. States with better compliance include Rajasthan, Karnataka, Himachal Pradeh and Andhra Pradesh. However, states such as Goa and Punjab have been clear laggards apart from Maharashtra and Tamil Nadu. Rajasthan's contribution to NPS corpus is Rs 1,948 crore till date, followed by Rs 1,386 crore from Karnataka and Rs 1,361 crore from Andhra Pradesh. On other hand, Goa, which had joined the NPS system in 2005 has contributed a paltry Rs 24.23 crore so far.

Partial compliance of state governments notwithstanding, the NPS already has built a subscriber base of nearly 5.5 million with nearly 3.1 million government employees. Its assets under management stand at Rs 37,681 crore. Currently, there are eight fund managers. PFRDA chairman Agarwal expects both the subscriber base and the assets under management to increase thanks to the passage of pension Bill.

"With the statutory backing of Parliament", investors' confidence is going to go up, which will act as major boost to the NPS, he observes. He adds other new initiatives such as enhanced fee for fund managers will ensure greater participation of private sector employees in the NPS. "NPS is the cheapest financial product in the country with one of the best returns. The reason it did not catch the fancy of investors is that it was not marketed well. That concern has been taken care of now," says Agarwal.

He, however, clarifies there is no question of NPS giving guaranteed return. The new legislation talks about giving subscribers access to a product, which gives minimum assured return, he says.


* While states deduct employees' contribution to the new pension fund, they don't remit the entire corpus to NPS regularly

* Difference in returns may prove to be the bone of contention between employees and govts, if retiring staff seek returns on a par with NPS retrospectively

* The NPS already has built a subscriber base of about 5.5 million with about 3.1 million government employees

With inputs from T E Narasimhan in Chennai and Sanjay Jog in Mumbai

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