What makes the NPS shine | Business Line

What makes the NPS shine | Business Line

Online comments posted on November 17, 2013(Published on November 21):

The article gives an impression that NPS has stabilised as an investment option in the Indian Financial Market. Ther can be no two views on NPS as a concept which can, in ideal conditions graduate into an investment instrument for securing the objectives detailed in the article. But the background in which the original NPS(New Pension Scheme) came into being in 2004 and the scheme’s progress so far do not generate hope. When conceived, its immediate ‘mandate’ was to eliminate the then existing defined benefit based pension scheme in government and public sector. Centre was in a hurry to give some alibi for not creating a pension fund. The Central government employees who were in service as on December 31, 2003 have a Defined Benefit Pension Scheme. The pension liabilities of central government which were being met on a Pay As You Go basis were becoming unmanagable. According to a 2008 estimate, the net present value of Centre’s pension liabilities was Rs 3,35,628 crore(6th Pay Commission Report,2008). Considering this staggering liability which grows proportionately with rise in inflation rate and periodical revision in pay structure, Central Budget, 2003-04 contained a proposal to introduce the new restructured defined contribution pension system for new entrants to central government service. The New Pension Scheme (NPS) for new entrants to central government service from January 1, 2004, except to Armed Forces, in the first stage, replacing the existing system of defined benefit pension system was thus introduced through a notification dated December 22, 2003.
In the NPS corpus of about Rs35,000 crore mentioned in the article, less than ten percent is accounted for by members outside the government and public sector employees for whom NPS has been made compulsory.
Considering the above background and now that the PFRDA Chairman has resigned in not so enviable circumstances, and already there are different views on overlapping jurisdictions of IRDA and PFRDA, really, NPS will have to take a rebirth to serve the purpose envisaged in the article.

M G Warrier, Mumbai


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