NPS base to jump by a quarter in FY22: PFRDA chairman Supratim Bandyopadhyay

By: and |
September 08, 2021 4:40 AM

Helped by distribution partners — mainly banks and banking correspondents —, the NPS subscriber base, which stood at 4.24 crore at the end of FY21, will get to expand by a record one crore in the current financial year, Pension Fund Regulatory and Development Authority (PFRDA) chairman Supratim Bandyopadhyay told FE in an interview.

Total enrollment grew by nearly 23% (thanks to Atal Pension Yojana and individuals) in FY21 and by about 7% from March 31 till August 28, to the current number of 4.53 crore.Total enrollment grew by nearly 23% (thanks to Atal Pension Yojana and individuals) in FY21 and by about 7% from March 31 till August 28, to the current number of 4.53 crore.

As many as 52 CPSEs, including biggies IOC, ONGC, NTPC, BPCL, GAIL (India), PFC and various railway companies, have come aboard the Nation Pension System (NPS) with over one lakh employees over the last few years, helping expand the cover, even as there has been a stagnation in new job creation by the Centre and a slowing of the pace of recruitment by many state governments.

Helped by distribution partners — mainly banks and banking correspondents —, the NPS subscriber base, which stood at 4.24 crore at the end of FY21, will get to expand by a record one crore in the current financial year, Pension Fund Regulatory and Development Authority (PFRDA) chairman Supratim Bandyopadhyay told FE in an interview.

Nearly 30 lakh people were added to the NPS fold till late August this fiscal, including 28 lakh under the Atal Pension Yojana (APY).

Apart from APY, the private corporate segment and the ‘All Citizens’ Model” (individuals) were also expected to show good growth, he said. Citing the precedents abroad, he also stressed the need for a universal pension-cum-insurance scheme for the masses, by combining the APY, the largest component in the NPS in terms of subscription base with two other government-run products – Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBM) and Suraksha Bima Yojana. APY assures a minimum pension of Rs 1,000-5,000/month to the subscribers, despite being market-linked, and has a current subscriber base of over 3 crore.

Of course, there is still a long road ahead to meet the objective of bringing the country’s entire 45 crore unorganised sector workers under a viable, robust social security net.

Bandyopadhyay said: “We have suggested (to the government) that let the APY not be isolated, because while what it offers is pension, when somebody starts contribution, say at the age of 18 or 20, she has a long way to go to get that pension. But, if her life is cut short, then the person or his family doesn’t actually get a good cover, even though the entire corpus created is returned to her nominee. If an insurance cover is also clubbed with the pension facility, say Suraksha Bima for accident cover and PMJJBM for life cover, the wider scheme could be ideal for the unorganised sector workers where the contribution levels are pretty low.”

He said as in many other countries, ‘nudging’ by the government to choose the ‘right financial product’ might go a long way in bolstering the social security net for the low-income workers.

With the government sector reaching near saturation, the non-government sector (excluding Atal Pension Yojana), which at present is only 7% of the total subscriber base, holds key to the growth of NPS as well as expansion of old-age income for the masses, he noted.

“Many of the CPSEs had their own superannuation schemes, either they were managing themselves or by insurance companies. When they saw a better option in NPS as it provides much higher post-tax returns and a higher corpus at the time of exit, they have chosen it,” Bandyopadhyay said. For CPSEs and state-run financial institutions, NPS is not mandatory, while for Union and state government employees, it already is. “Life Insurance Corporation is also set to shift their employees to NPS soon,” he said.

The government sector subscribers fetched a return of 12.6% on the NPS corpus in the past year while it was 8.5% under EPFO and around 8% under a couple of superannuation funds run by insurance companies. In the last 12 years, the average annual return of government NPS subscribers has been over 10%, Bandyopadhyay said.

In a low-interest regime, it often becomes difficult for many corporate houses including CPSEs to even match the returns given by EPFO (8.5% for last year), so shifting to NPS enabled them to cut subsidy costs to match EPFO returns.

Individual NPS subscribers get tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act and an additional deduction of Rs 50,000 under section 80CCD 1(B). Moreover, NPS contributions by employers (up to 10% of the salary) is allowed as a deductible perquisite for employees under Section 80CCD(2), subject to a ceiling of Rs 7.5 lakh in a financial year. An employer can claim the NPS contributions to employees’ NPS accounts (up to 10% of the salary) as an exempted business expense under Section 36(1)(iva). At maturity, 60% of the lumpsum amount received by subscribers is tax-free and the balance invested for purchasing annuity is also exempt from tax.

The central government employees’ enrolment grew just 3.5% on year in FY21 and 1.7% between March 31 and August 28, 2021, to a total of 22.13 lakh. Enrolment of state government employees rose 8% in FY21 and grew about 4% from March 31 till August 28 to a total of 53.37 lakh. In contrast, enrollment in the corporate sector, which includes CPSEs, grew nearly 16% in FY21 and by 7% between March 31 and August 28. The current subscriber base in this segment is 12.04 lakh. Total enrollment grew by nearly 23% (thanks to Atal Pension Yojana and individuals) in FY21 and by about 7% from March 31 till August 28, to the current number of 4.53 crore.

The PFRDA is expecting fresh NPS fund inflows of Rs 1.25 lakh crore in FY22, a growth of 22% on year. Depending on market conditions, assets under management could see over 30% growth to somewhere near Rs 7.5 lakh crore in FY22, it reckons.

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