Is the NPS distribution model at an Inflection Point?

With PFRDA’s impetus on revised POP compensation, the demand for National Pension System (NPS) is likely to gain traction in the country with 1.4 million-plus customers as of March 31, 2021, the total pension AUM was Rs. 5,62,338 crore, up 38.18 percent year over year. NPS has a lot of space to develop because of the proposed tax breaks in the budget. Furthermore, given the underutilization of NPS in India and the absence of social security infrastructure, we feel that Pension Funds have a lot of space to grow.

Intending to maximize the reach & to increase the footprint of the National Pension System (NPS), pension regulator PFRDA has notified increased charges for NPS-related services offered by POP w.e.f February 1, 2022. This increase is across initial subscriber registration, initial contribution, all subsequent contribution, and persistency charges. The proposed revision of the POP compensation structure anticipates strengthening the inclusion of distributors in the entire value chain by increasing potential revenue. 

Regulator’s policies aiming at expanding the NPS market, such as the inclusion of agents, increase in revenue, and many only indicate better prospects for the market players going ahead. With the increase in POP revenues, key players are keen to onboard distributors to expand their market by offering attractive revenue payout to the agents. Agents / MFDs will act in a fiduciary capacity towards their clients and assist their clients at all stages of NPS, from onboarding to withdrawal. Agents will be required to choose a POP to extend NPS services to their investors and add a revenue stream to their existing cash flows.