NPS subscribers are less swayed by short-term market movements now, says Axis Pension Fund CEO Sumit Shukla

Customers now understand that the money is intended for their retirement and that the investment horizon is long, says Sumit Shukla, MD and CEO, Axis Pension Fund, in a conversation with Preeti Kulkarni.

From being a simple retirement savings scheme, the National Pension System (NPS) now offers a wide range of funds and plans, including Multi-Scheme Framework (MSF) funds, Retirement Income Schemes (RIS), NPS Swasthya and NPS Vatsalya. Has it become too complex for do-it-yourself (DIY) or lay investors?

I don’t think the recent changes have increased the complexity of NPS. The objective has been to provide options without making the core product more complicated for the average subscriber.

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The full-scale version of NPS Swasthya (health-linked pension solution) has been launched recently. What were the limitations in the pilot version? What has changed in the product recently launched by Axis Pension?

In the earlier version, customers had to invest the entire amount and then use a portion for health insurance premiums. We realised that this could be made simpler. The amount required for health insurance top-up can be paid directly to the insurance company. The customer can invest a minimum Rs.1,000 towards the corpus, which will get invested in the NPS Swasthya scheme. Renewal of the health insurance policy can be funded through the Swasthya corpus. One of the important features is that it addresses a gap for older customers. We had several customers in their 70s, for whom getting adequate health insurance coverage was difficult. This product provides coverage options that are otherwise difficult to obtain at that age.

Despite the growth in corporate NPS, what explains the low uptake, given the tax benefits available under the new tax regime?

The deduction for employers’ corporate NPS contribution is a key benefit available under the new tax regime. Awareness is certainly one of the biggest issues. Employees need to understand the importance of starting retirement savings early and the long-term benefits of doing so. Human resources (HR) teams need to actively communicate the benefits and facilitate the process for employees. The other challenge is distribution. If you are not able to reach people on the ground or engage with customers effectively, awareness alone may not translate into action. The distribution structure and the economics of the product also play a role.

Does the current commission structure for distributors need to be revisited?

The regulator has taken steps in this direction, including changes to the economics for distributors. The impact of these changes will take some time, perhaps a couple of years, to become visible. At the same time, NPS needs to remain a low-cost product. That is an important part of its proposition and we do not want to move away from that. We are not looking at a significant increase in fees or payouts that would change the fundamental proposition of NPS.

How do you assess Pension Fund Regulatory and Development Authority’s (PFRDA) approach to NPS? What further policy changes would you like to see?

PFRDA is very proactive. The level of interaction with the industry and the regulator’s approach to introducing changes has improved significantly. One area we would like to see opening up more is the government employees’ contribution that currently flows to the three existing pension fund managers (PFM)—LIC, SBI and UTI, the default choices. There is a case for greater competition and choice. This would give subscribers a meaningful opportunity to choose fund managers.

But central government employees already have the choice of selecting a pension fund manager…

A majority of customers have not really understood that choice or exercised it. There is, therefore, a need to create greater awareness and ensure a level playing field for all PFMs.

Are you seeking any changes on the tax front?

There needs to be greater clarity around the taxation of Tier-II NPS accounts. The rules should clearly specify how withdrawals from Tier-II will be taxed, rather than leaving room for uncertainty. While the PFRDA website mentions that the gains will be taxed as ‘Income from other sources’, the necessary changes need to be made in the statute. There is also a case for extending the Rs.50,000 tax deduction to a wider set of NPS products and customers, including those who do not have an employer-sponsored retirement plan. This could encourage more people to start saving for retirement.

How have subscriber preferences changed over the past few years? How have they reacted to market turbulence?

Customers now understand their investments better and are looking at them from a longer-term perspective. They understand the role equities can play in generating returns over the long term. We have not seen them react to short-term market movements in a major way. They understand that the money is intended for their retirement and that the investment horizon is long.

Beyond NPS, if we were to look at the big picture, how would you rate Indians’ approach to retirement planning?

I think more needs to be done by the government, regulators and other stakeholders. Retirement planning and long-term savings need a more focused approach. People often come across very large retirement corpus targets and may feel that these are impossible to achieve. This can deter them from taking the first steps. We need to create a culture where people start saving early and set aside money specifically for retirement.

How do you see Axis Pension’s performance over the last four years? What are your plans?

We have scaled up significantly. We are currently managing around Rs.21,000 crore of assets and our customer base is more than 6,50,000. Our aim is to cross Rs.50,000 crore in assets under management over the next three years. We want to leverage the Axis ecosystem and the bank’s distribution network while continuing to grow in a profitable manner. Our focus over the next five years is to grow both our subscriber base and AUM. On the investment side, our approach is to remain risk-conscious and focused in the long term. We monitor risk closely and ensure that our investments remain aligned with the policies laid down by the regulator and our board. We want to deliver consistent performance while maintaining a disciplined investment approach.