Wednesday, 11 November 2009

A Wonderful Idea

Economic Times threw up a wonderful idea in it's editorial on Nov 10, 2009.

They argue

The government must mandate the Employees’ Provident Fund Organisation, which is trying to computerise its operations, to not duplicate effort and waste resources, and, instead, adopt the Central Record-keeping Agency (CRA) of the National Securities Depository Ltd (NSDL) that services the New Pension System (NPS).

If this idea is implemented, it will go a long way to make the New Pension Scheme viable for the intermediaries and also drive down costs of the savers further.

The cost of maintaining an NPS account with the CRA is high for a voluntary contributor, because of the virtually fixed overhead costs are spread over a small number of subscribers. The annual service charge for maintaining an account would fall, says an estimate, from the current Rs 350 to Rs 250 when the number of accounts maintained by CRA rises to 30 lakh. Likewise, the transaction fee will decline to Rs 4 per account from Rs 10 at present.

But the article stops half way and does not go to the logical end of the issue. What is really needed is to give the employees, who contribute compulsorily to EPFO, the freedom to choose between EPFO and NPS. Only then the service we get from EPFO can improve meaningfully.