00:00Good afternoon.
00:06I thank Outlook Money for this opportunity to be part of this August gathering.
00:14I propose to discuss how innovation in the National Pension System that is NPS has made
00:21pension accessible to all.
00:25You know pension is a necessity.
00:29Current financial planning, especially early retirement planning is important for long
00:34term financial well-being.
00:37Pension as a financial product is not readily substitutable with any other financial assets.
00:49Pension provides lifelong financial security for self and spouse on retirement.
00:55Pension assumes added urgency at the current juncture of our socio-economic development.
01:01In this context, I may highlight a few issues.
01:05First, rising longevity.
01:09The share of population over the age of 60 years is projected to increase from 10.5%
01:15in 2022 to about 20.8% by 2050.
01:22This aging is likely to accentuate as every fifth Indian is expected to be over 60 years
01:27of age by the middle of this century.
01:32Life expectancy is also showing a steady increase with improved nutrition and health care.
01:40Rise in the share of older people coupled with higher longevity would imply that income
01:47provisions would have to be made for longer periods for decent post-retirement life.
01:53Second, increasing dependency.
01:57The old age dependency ratio is expected to increase from 18% in 2020 to 30% by 2050,
02:05exerting pressure not only on our younger generation but also on our financial resources.
02:12This financial implication would be disproportionately large unless working-age populations make
02:17provisions for their future.
02:19Third, rising health insurance costs.
02:26As people age, health care expenses typically increase.
02:30A well-planned pension provides the resources to manage this cost and make older care affordable.
02:37Fourth, changing family dynamics.
02:41The implied insurance of traditional family structures, where elderly parents largely
02:46relied on their children for support, is changing.
02:50Adequate pensions offer financial independence to manage one's own affairs.
02:59Let me in this context turn to the features of the national pension system.
03:05NPS is a flexible, digitally-enabled, easily accessible low-cost pension product with market-driven
03:20competitive returns.
03:23The introduction of NPS in India marked a paradigm shift in transition for a defined
03:29DB plan to a defined contribution system, enhancing the stability of our pension system.
03:36In the past, pension was perceived to be the privilege of government employment.
03:41It is no longer so with the introduction of NPS in 2004, first for the government employees
03:48and then extended to the private corporate, including the common person, and now to children
03:54with the scheme of NPS Vastilya.
03:58NPS Vastilya can be seamlessly ported to workplace pension on the child coming of age and joining
04:05the workforce, thereby providing continuity to one's retirement savings account.
04:10Thus, any member of the family from infancy to 70 years can really join NPS.
04:20Technology in NPS is the result of innovation informed by user experience.
04:25First, NPS has an unbundled architecture, with each intermediary at the background undertaking
04:32a specialized activity in a professional and cost-effective manner, attaining an economy
04:38of scale.
04:40This architecture helps minimize the risk of a sole dependency on entities involved
04:46and eliminates the risk of failure of the system.
04:49Second, digitalization has played a crucial role.
04:54It eases onboarding and significantly reduces the cost to the subscriber.
04:59One could join NPS digitally using net banking, mobile apps, or eNPS, or physically through
05:07bank branches, including now we have enabled the regional rural banks, they can also offer
05:13NPS.
05:14Since we are partnering with this event, I just saw outside there is a stall by our NPS
05:19trust, so there is a QR code one can scan and can seamlessly also join through eNPS
05:27without hardly any cost.
05:30Third, NPS offers flexibility in selecting pension funds and asset allocation.
05:37It offers auto-choice and active choice of asset allocation.
05:41In auto-choice, one gets to select any one of the four life-cycle funds which balance
05:47risk with age among various asset classes.
05:50For example, as one ages, the equity allocation tapers down automatically.
05:55Alternatively, there is an active choice where the subscriber chooses their own asset class
06:03depending on their risk appetite.
06:05For example, one can invest up to 75% in equity irrespective of one's own age, because if
06:12you are doing your own active choice, you can make your own cocktail of what kind of
06:19a pension that you need.
06:22Fourth, NPS provides a very low threshold of entry, making it truly a people's product.
06:31The NPS account remains active only with an annual contribution of Rs. 1000.
06:37It is not necessary to contribute every month.
06:40Thus, NPS is also suitable for people with irregular income.
06:44There is no upper limit for contribution.
06:47It has its own advantage.
06:49For example, youngsters contemplating to retire early can front-load their contribution to
06:56achieve the retirement goal.
06:58Similarly, a subscriber can defer his or her exit and can stay invested in NPS up to the
07:07age of 75 years.
07:10Additionally, the subscriber has an option to withdraw the lump sum amount in the form
07:16of systematic lump sum withdrawal, SLW, in a phased manner up to the age of 75 years.
07:25They can also withdraw any time if they change their mind.
07:28They can withdraw any time, the entire amount also.
07:32Let me just capture briefly the progress of NPS.
07:36At present, NPS has around 16 million subscribers, 9.6 million are from the government side,
07:446.4 million are private subscribers, with a corpus of almost Rs. 13.4 trillion.
07:53Both private citizens and corporates have enrolled with NPS.
07:57Private sector NPS assets have also shown substantial growth in the recent years.
08:03The corpus from the private sector is about Rs. 2.8 trillion.
08:09There are actually about 19,000 corporates with about 2.2 million subscribers, including
08:151.3 million from the private corporate sector.
08:20But the problem is the adoption of NPS by the private corporate employees, however,
08:25is not commensurate with the large number of corporates that have joined, underscoring
08:30the need for concerted effort to tap into the potential.
08:36The popularity of NPS is also rising among individual subscribers, with a subscription
08:41base of 4.2 million, expanding at a compound annual growth rate of about 22%, surpassing
08:49the growth of employer-based subscription, that means both from the government and what
08:55is coming from the corporate sector.
08:58The scheme under NPS has generated attractive returns.
09:01The average annual returns in the inception under the equity scheme in NPS has been 13%,
09:07with 9% for the corporate debt scheme and 8.8% for the government security scheme.
09:13And for the central government, which is a conservative scheme, a mix of equity and debt,
09:19and since inception it has given a return of 9.5% per annum.
09:24So these are clearly very attractive returns if you compare with the market returns that
09:29you get in competing products.
09:33Despite all this, why is this pension coverage so inadequate?
09:37The pension coverage in India is inadequate mainly because 80% of our workforce is engaged
09:43in the unorganized and informal sector, where they don't have access to occupational pension
09:50as in the organized sector.
09:52As the economic survey, 24-25, shows that around 58.4% of workforce was self-employed,
10:0019.8% was casual labor, where there is no statutory access to social security benefits
10:07like workplace-related pension.
10:09Similarly, on the ISRAM portal, Ministry of Labor and Employment, which puts out, over
10:15305 million unorganized workers were registered, suggesting that the bulk of the workforce
10:22goes uncovered by pension.
10:27This challenge is not limited to us.
10:29A recent study by the Organisation for Economic Co-operation and Development, OECD, showed
10:34that Asian Pacific region's pension systems are facing common challenges as they attempt
10:39to expand coverage and ensure adequacy and fairness while maintaining fiscal sustainability.
10:47While pension system designs vary, coverage of contributory schemes is a common challenge
10:53because of stubborn informality, because people would have to self-contribute, they would
10:57have to be self-motivated to save for the future.
11:02At the same time, regional and global experience suggests potential for coverage expansion
11:09by focusing on workers not yet covered by design, such as self-employed, business owners,
11:15those in enterprises below certain size, and gig and platform workers.
11:22Let me conclude.
11:23There is a need to expand pension coverage so that people have adequate post-retirement
11:29income to lead a life of dignity.
11:32However, the adoption rate is low even among people who have the income to contribute,
11:37partly due to inadequate appreciation of the need.
11:41I hope events like this, focused on retirement planning, will help in improving awareness.
11:47The NPS has made pension available to all, irrespective of one's income and employment
11:54status.
11:55We have been working on improving the accessibility of NPS, both digitally and physically, to
12:02every citizen of India, and also to increase awareness.
12:07Once again, I thank Outlook Money for inviting me to interact with you.
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