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Financial Literacy & NPS

Financial Literacy & NPS. P. K. Tiwari Executive Director Pension Funds Regulatory & Development Authority. PFRDA: What we do. Established by Govt. resolution; proposed to be statutory in due course Mandate: regulation and development of pension sector Administers New Pension System (NPS)

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Financial Literacy & NPS

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  1. Financial Literacy & NPS P. K. Tiwari Executive Director Pension Funds Regulatory & Development Authority

  2. PFRDA: What we do • Established by Govt. resolution; proposed to be statutory in due course • Mandate: regulation and development of pension sector • Administers New Pension System (NPS) • For Govt. employees: 1 Jan 2004 • For Unorganised sector: 1 May 2009 • First of its kind: available to all citizens

  3. NPS: Distinctive Features • DC, voluntary, IRA based • 3 sets of intermediaries • POPs: open accounts, accept contributions • CRA: mobility across regions/ professions • PFMs: professional, appointed through bidding • Electronic transfer of info and funds • Very low costs • Individual has choices of PFM, invest. Schemes etc

  4. NPS: Recent Developments • Contribution by Govt.: Budget announcement • States encouraged to follow • 39 POPs registered, over 50,000 POS • We plan to make the distribution network most comprehensive • Option of opening accounts online • NPS at your desktop is an avowed objective

  5. Fin. Literacy and NPS • Inclusion must also look at post working life • NPS must be an integral part of inclusion/ literacy campaigns • RBI initiative to bring villages of 2000 within banking fold perfectly fits in our plan • Synergy with employment guarantee program- move towards livelihood guarantee • Pension Ganga must touch every vulnerable

  6. Literacy Campaigns: bird’s eye view • Many laudable initiatives • Ministry of Corporate Affairs, RBI, NABARD, Regulators, Stock exchanges, banks (Citi, ICICI etc) • NGOs: Microfinance touches more than 80 million lives • National Alliance for Financial Literacy (NAFIL) • ICICI Foundation

  7. The way ahead • Need for a national level coordinating agency • Experience of US, UK, Australia, NZ • Funding issues: Govt., regulators, PPP • Need for innovative solutions • Key components: • Linkage with school education • Online tools/ tech. based solutions • Helpline (national/ regional)

  8. Literacy: other important issues • What is it aimed at? • Ability to make informed decisions or ask right questions • Need to lay standards of fin. Literacy • LTCM failed with 3 Nobel laureates on board • Greenspan (2007) admitted he was aware of the risk in MBS much before the crisis (2008) • Literacy campaign has to be a continuous process

  9. Fin. Literacy and regulation • Complementary and not substitutes • Reg. very important as risk is rapidly shifting to consumer: literacy alone not sufficient • Stability requires a dynamic review of policies, practices (e.g., leveraging) and products (MBS), all of which can pose a risk collectively or individually • Literacy only a means, not an end • A broader view transcending regulatory silos required

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