While the National Pension System (NPS) has a robust architecture, there are demand supply loopholes in the system and it also lacks flexibility, an essential component for the sector, as per findings of a discussion session held by NCAER.

The National Council of Applied Economic Research (NCAER) held a workshop on investor education and protection with financial regulators, focussed on the NPS. The workshop was attended by domain experts from PFRDA, finance ministry, economic institutions and other stakeholders.

Even as NPS has a robust architecture, there is a gap between demand and supply side in the Indian pensions market, NCAER said in a release on Thursday, citing the key takeaways from the discussion. It requires more innovation in financial products and needs to be customised depending upon the target population, it added. "Flexibility is an essential component, which is currently missing in the NPS structure and measures like promoting compulsory contribution to the NPS is necessary," it said.

Removal of withdrawal restrictions can enhance participation. Also, funds need to have a diverse investment portfolio like option of investing in international and equity markets, said the economic think-tank. Citing a recent survey conducted by the National Centre for Financial Education (NCFE) on financial literacy and inclusion, its CEO Satyajit Dwivedi said around 20 per cent of the respondents felt there was no need for pension while 18 per cent were not aware about pension.

"This amounts to over one third of the population that is not investing in pension plans, which is such a critical need for ensuring the financial safety for any individual," Dwivedi said during the discussion. Pension Fund Regulatory and Development Authority (PFRDA) Chairman Supratim Bandyopadhyay highlighted that the customer base of NPS grew at a fast pace of nearly 35 per cent in terms of assets within the past year.

Among other findings of the workshop, NCAER said there is a need to bring various pension funds, currently having different regulators, under a unified regulatory framework. Investors need to be educated not merely about wealth creation, but also about the sustainability of income in the old age.

More studies are required to bring behavioural changes in the investors, and communication to investors needs to be more personalised, it said. "Presently there is a debate around the costs associated with the distribution agents, which could be addressed by selling products directly to the end consumers.

"For this, existing digital platforms can be used to open a pension account, and investors must be protected with metrics like risk and suitability analysis at the time of onboarding," it added. Madnesh Kumar Mishra, joint secretary (pensions), Department of Financial Services, said PFRDA will shortly release the second phase of its subscribers' education programme. To make the NPS more robust, the NPS Trust needs to be separated from the PFRDA. Several amendments have been proposed and presented to the cabinet for consideration, he said. Further, research suggests that by 2030-35, the government employees' contribution to pension funds will be around Rs 35 lakh crore, Mishra noted. This makes the canvas of the Indian pension system huge, and funds can be used for both providing a social security net and contributing towards infrastructure development, he added.