Replace EPFO With NPS??

Suddenly, there’s seems to be an abundance of people who are eager to mark the New Pension System (NPS) as a failure. Everyone’s favourite statistic is the laughably small number of people (2,500 or so) who have actually, of their own free will, enrolled in the NPS. However, this number is completely irrelevant. It doesn’t tell you anything about the NPS. What it does tell you is that the NPS today is like a product that has been designed, but exists only in the design labs. It hasn’t yet been launched in the market.

Moreover, the 2,500 members that the NPS has got is a miracle because, out of the various entities who are supposed to be selling it, some are ignoring it completely, while others are actively de-selling it. If you walk into a bank that’s supposed to be an NPS agent, chances are that no one in the branch would have heard of the NPS and they will actively try to sell you an unit-linked insurance policy (ULIP) or a mutual fund as an alternative to the NPS. This is a product without a seller, and the way the world works, for all practical purposes, such a product doesn’t really exist.

I’ve read that the pension authority (PFRDA) is about to launch an advertising campaign to promote the product. That’s great and will surely result in more people hearing about the NPS. However, people who have first hand experience of marketing financial products would still doubt whether it would be enough to actually create participation without a structure that creates more profit for the seller than competing products do. It’s possible that the NPS’s future lies in being a mandatory saving, just like practically every retirement savings solution around the world.

Under the circumstances, the most significant step would the replacement of the Employees’ Provident Fund Organisation (EPFO) with the NPS for the private sector. It’s a puzzle that, as things stand today, the government’s pension money is being managed by the private sector (the NPS’s fund managers) and the private sector’s provident funds are being managed (though managed is not the right word) by the EPFO. Moving the private sector to the NPS is an urgent need. Not only would this free employee from struggling with the phenomenally hostile service quality of the EPFO, it could encourage many more businesses to come into the pension fold.

This is such an obvious step that it’s a puzzle that it wasn’t done right away with the launch of the NPS. In any case, if the NPS is ever to move beyond being just a solution to the government’s financial problem of financing pensions and fulfill its real potential, then it has to become an automatic and unavoidable option for every employee in the country.