Demonetisation has slowed economic growth and resulted in job losses for many in the organized and unorganized sectors. However, the National Pension Scheme (NPS) would not see much impact from demonetisation, says Sandeep Shrikhande, CEO of Kotak Pension Fund.
Demonetisation has resulted in a lot of job losses across the organized and unorganized sectors. What impact do you see on pension subscriptions going forward?
If you look at the pension sector today, almost 95 percent of it comprises government employees. There is no job loss in the government sector.
There is a small portion of the unorganized sector under two schemes — the Swavalamban and Atal Pension Yojana — which would have a large chunk of subscribers. But their contributions are quite small.
But yes, the Atal Pension Yojana may slow down because that is largely related to the unorganized sector. So if they are going to have any problem in their livelihood, I am sure their potential to save is going to reduce substantially. So that may be a temporary setback because it is a very attractive scheme and the returns have been good and the administration extremely efficient.
When do you think unorganized sector subscriptions will get back to levels prevailing prior to demonetization?
About 85 percent of those in the unorganized sector, it is estimated, has no access to any formal pension.
If the overall economy bounces back, automatically it will have an impact on people’s savings. But even before demonetisation, pension saving was relatively low on people’s priority list.
For the middle class, saving ₹5,000 a year may be nothing but for the poor saving even ₹1,000, a year is a big challenge.
The other challenge which I foresee is that even if they come back it will take some time for their savings level to increase.
If they were earlier allocating ₹1,000-5,000, they may start off with ₹200-500 and it will take some more time for them to actually reach peak levels.
For a salaried person, a tax break for investment in NPS of ₹50,000 is allowed over and above the ₹1.5 lakh limit. This does not seem to have a percolated to the people below.
Both the salaried and business people can invest ₹50,000. Firstly, the tax break was announced only in last year’s Budget so it will take some time for its impact to be felt.
And if you look at the NPS model, there is no distribution, it is a pull model. So it has to be bought either through people’s awareness or through companies promoting it among their employees.
Unfortunately, there are no pension agents in the country. There is a new concept floated by the PFRDA called retirement advisors, who can actually go and advise people about pensions but it is at a very early stage.
How much of the incremental funds that have come into the banking system will come to the pension sector?
A lot of that has not yet moved to investment because people are uncertain.
This is their money which they had withdrawn for various purposes. The pension is again a low priority.
And, in pension, there is a lot of confusion.
There is insurance pension, mutual fund pension schemes, and the NPS pension scheme besides PPF.
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