This government of India agency also goes by the full name of Pension Fund Regulatory and Development Authority or PFRDA for short. It was established and accordingly set up under the PFRDA Act 2013, that has been notified on 1 February 2014.
The primary responsibility of the PFRDA is to regulate and manage the NPS, a defined contribution pension plan that began for the government employees in 2004 and which has been subsequently opened for the citizens of India in 2009.
Most of the pension industry in India was until recently uninsured or poorly insured and the major sources of retirement savings were either EPF or pensions given by the government.
It brought the possibilities to expand the Pension coverage to some extent, secure the post-retirement income for the elderly, and Professional management of Pension Funds by the formation of PFRDA itself.
The PFRDA Act, 2013
Key Provisions:
Establishment of PFRDA: This Act formally brought the PFRDA into being as a statutory organization with regulatory authority over the pension.
Regulation of Pension Funds: It is aimed at the obligatory pension funds’ registrations and regulation of persons involved in the management of pension savings.
Promotion of NPS: PFRDA is responsible for the sale of the National Pension System due to its Broad mandate of popularizing the product.
Protection of Subscriber Interests: This Act also gives the power of regulation making to PFRDA so as to enhance the welfare of the subscribers by forming rules of the disclosure of information and regulation of accounts and also providing a channel of complaint.
Central Record Keeping Agency (CRA): Among its provisions the Act envisages the creation of the CRA which would remain responsible for record keeping and continuity of transaction operations of NPSs.
Adjudication of Disputes: PFRDA has powers to address disputes among the stakeholders of pension industry.
Functions of PFRDA
The PFRDA focuses on this mandate on pension sector regulation, protection of subscribers, and transparency. Below are its primary functions:
Regulation of NPS:
While it is the functions of pension fund managers to manage and invest pension funds and CRA and other intermediaries, the central bank should supervise its operation.
Achieve conformity with the guidelines of investments as well as risk handling norms.
Policy Formulation:
To undertake policy measures for the increase coverages particularly in the unorganized sector.
Develop policy regarding investments to obtain the highest revenue for the subscribers.
Registration and Licensing:
Be open for registration for grant for pension fund managers, CRA, among other intermediaries.
Set standards as to those who can join the particular program and ensure compliance to those standards.
Promoting Financial Literacy:
Increase knowledge among the general public as to the benefits of proper pension preparation.
Organize competency-based training programs like workshop, campaign and outreach program to sensitize ANF to NPS and other associated schemes.
Grievance Redressal:
They should offer means through which the subscriber can express his or her complains.
It says that conflicts should be solved in order to preserve confidence in superior legal norms.
Research and Development:
Conduct research works to develop pension reforms and opt for the implementation of international benchmarks.
To deliver value to the subscribers in a continuously changing world, one needs to research and develop innovative and new products.
Monitoring and Compliance:
Carry out pension fund examinations and surveys of pension fund intermediaries.
Threats, which are penalties for failing to implement definite number of regulations.
The Central Record Keeping Agency (CRA)
The CRA has more significant functions in the functioning of the NPS since it serves as the main database center of subscriber data to ensure the process runs efficiently.
Duties of CRA:
Subscriber Registration:
- Be responsible for the administration of the registration of persons and employers wishing to join the NPS.
Account Maintenance:
- You should ensure that the records of the contributions, withdrawals and transfers of each subscriber be kept in detail.
- It must issue permanent Retirement Account Numbers (PRAN)-subscriber numbers that are unique to every client.
Transaction Processing:
- Any amount subscribed should be tracked and ensure that it goes to the right pension fund of the subscriber.
- Establish inter-sector and inter-scheme transaction among different sectors within NPS.
Grievance Handling:
- Ensure that a website has been developed whereby people can present their complaints and also their solutions are posted online.
- The complaints also should be addressed promptly and effectively.
Interface Management:
- The officials should work in synergy with pension fund managers and trustee banks/nodal offices for efficiency purposes.
Transparency and Reporting
- Notify the subscribers and produce weekly, monthly, and annual statements.
- Publish reports on fund performance and administrative efficiency.
Objectives of PFRDA
Universal Pension Coverage:
Increase coverage of pension schemes like the NPS to realms and fertility unaided sectors, as well as low-income citizens.
Promote Financial Security:
Guarantee pension coverage of subscribers through professional management of the Individual Accumulation Accounts.
Efficient Regulation:
Ensure the development of sound legal reforms which protect the subscription clientele.
Sustainable Growth:
Promote long term capital that will drive the growth of the economy and the infrastructure for the same.
Innovation in Pension Products:
Establish as many pensions as possible for people with different needs and in different ages.
Transparency and Accountability:
Improve trust through clear sightedness of functions and high governance benchmarks.
Advantages of PFRDA
Professional Fund Management:
It provides maximum and efficient returns on pension funds through proper and efficiency management on pension funds.
Wide Accessibility:
NPS is accessible to all the citizens of India including the NRIs; providing the macro coverage financially.
Tax Benefits:
Various benefits of the scheme are that the contribution made by the individuals in NPS is tax exemptible under Section 80CCD of the Income Tax Act.
Portability:
The subscribers can log in his/her account from anywhere in India as a result of job changes or shifting of place.
Low Cost:
NPS runs at a low cost compared to many other retirement saving tools.
Customizable Investments:
Customers can therefore select to make Active or Auto Choice style investments based on client’s risk profiles.
Grievance Redressal Mechanism:
The overall management of complaints received through subscribers also improves the confidence in the system.
Challenges and Limitations
Low Awareness: The problem is that there isn’t enough information about the NPS and the PFRDA restricting its involvement.
Complexity: Some of the potential subscribers conform to the following factors; they receive the information and are sometimes overwhelmed by the requirements for registration or investment products.
Limited Coverage in Unorganized Sector: Low financial inclusion amongst the informal workers continues to persist even when schemes such as Atal Pension Yojana are developed to achieve the contrary.
Dependence on Market Performance: Funds generated from NPS are invested in the market, making investment volatile for the subscribers.
Insufficient Grievance Mechanism Reach: However, the rural and remote subscribers struggle to access grievance redressal services most of the time even though mechanisms have been put in place to ensure that they offer their services.
Competition from Traditional Schemes: EPF and PPF are more familiar although there are better forms of investment than the EPF where individuals could invest their funds.
Prospects and Recommendations
Enhanced Awareness Campaigns: FINALLY, sponsor programs that will create nationwide awareness on the importance of NPS and retirement saving.
Simplification of Processes: The registration and contribution procedures should be optimized to minimize barriers of access.
Focus on Financial Literacy: Collaborate with schools and development and NON-governmental organisations to expand financial literacy especially to the farmers.
Incentives for the Unorganized Sector: Propose more incentives to extend the participation of the informal workers.
Strengthen Grievance Mechanisms: To increase availability of grievance redressal tools by creating mobile applications and offices in regions.
Leverage Technology: Follow AI and data analytics to control compliance and to forecast trends as well as to enhance decisions.
Conclusion
PFRDA has been playing an important role in reforming Indian pension sector and providing social security to the people of the country on their retirement.
Through the management and promotion of such schemes as NPS the PFRDA is dealing with the issues of longevity and meager social security.
But here also there is an opportunity for the expansion by augmenting the awareness, simplifying the procedure and by bringing out new schemes that would encourage the unorganized sector.
Furthering such endeavors, the PFRDA will able to act for the socio-economic evolution of India by ensuring the financial stability of millions.
FAQ’s
The meaning of PRAN in NPS?
The full form of PRAN in NPS is Permanent Retirement Account Number which is a number provided to the subscriber of NPS.
Can I withdraw funds before retirement under NPS?
Yes, but only in case of some circumstances like a particular medical bill, children’s education among others.
What is the grievance redressal mechanism for PFRDA?
Subscribers can only send their complaints through CRA online portal or through phone on helpline no and PFRDA promptly address the complaints.
What measures does PFRDA take to guarantee professional management of the pension funds?
PFRDA oversees the pension fund managers with regard to legal requirements concerning investment, controls the adherence of the managers to the guidelines and benchmarks the performance of the fund management.
Can one use NPS account at another employer?
Yes, NPS is portable and you can take your account with you even when you switch jobs or move residential places.
Which activities does PFRDA undertake to accomplish this?
Through sensitization campaigns, conducting of relevant fairs, forums, and partnering with institutions to teach citizens about retirement saving.
Does PFRDA have penalties for non-compliance?
Under PFRDA, fines or withdrawal of license affects inter alia the non-compliant intermediaries.
How does market performance impact NPS returns?
NPS returns are market indexed meaning profits depend on the performance on assets backed.
Since the PFRDA has made efforts to introduce social security for unorganized workers into India, what steps can improve its effectiveness?
The first step is that awareness for this system needs to be increased, the second step is that processes need to be made simpler and the third step is the use of technology for better results and the last which may be optional is the provision of incentives for the unorganized workers to register under PFRDA.