NPS – Choice of the pension funds

NPS – Choice of the pension funds

a) Choice of the pension funds

1. The current process restrict the deployment of funds of the Central Govt. employees across the three Public Sector PFs only. In the first place, this prevents the employees to choose a pension fund(even amongst public sector PFs as they are restricted to a combination of three Public sector PFs) Secondly ,this dispensation disallows them to tap the expertise of the Private sector pension Funds. Not only is this discriminatory on the grounds of equity, this also militates against the spirit of the PFRDA Act which provides for choice of the Pension fund under section 20(2).

2. It may not be out of place to mention that the PFRDA Act further provide for at least one public sector Pension fund. Hence, those Govt sector employees always have the option of choosing a public sector Pension Fund. However, this has to be the conscious decision of the employee, based on his perception of the performance of the Pension Fund, rather than a mandate by the employer.

3. The opening of choice of Pension funds to the Central Government employees will not only benefit the employees but also galvanise the pension sector in more ways than one. It would create competition amongst the pension funds, both public sector and private sector- to vie for the pension corpus. Enhanced size of the market will also attract more players in Fund Management space leading to greater specialization, risk diversification, risk management and enhanced governance standards and better performance across the industry. The concomitant result would be increased efficiency in both pricing & servicing and higher levels of subscriber satisfaction. Hence, for the benefit of subscribers and development of the pension sector as a whole, it would be desirable to allow market forces to determine the size of the pension corpus managed by a pension fund rather than through a mandated / directed regime. This has also been recommended by the Bajpai committee as stated below. The restriction of allowing Pension funds only from the public sector to manage the funds of Government employee subscribers may be done away with. This will also be in keeping with the mandate under the PFRDA Act to provide choice to the subscriber. On the other hand, the enhanced competition and the appurtenant economies of scale shall go a long way in building a healthy pension corpus for the subscriber.”

4. However, as approved by the Board, the default option for central Govt employees could continue be the combination of three Public sector Pension Funds as hitherto. Subsequently, this could be moved to one pension fund from the public sector and finally to any pension fund, selected as default Pension Fund.

Authority: www.pfrda.org.in