NPS is gaining traction in private sector, says PFRDA chairman

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Updated: June 21, 2021 8:18 AM

Despite the pandemic, nearly 6 lakh new private subscribers (corporate employees and citizens) joined the NPS in FY21, up from about 5 lakh in FY20, Bandyopadhyay said.

NPSWith the government sector reaching near saturation, private sector, which hitherto was 7% of total subscriber base, holds key to the growth of NPS as well as expansion of old age income for masses.

After stagnating for over a decade, the National Pension System (NPS) was gaining traction in the private sector with about 10 lakh new subscribers expected to join it in FY22, Pension Fund Regulatory and Development Authority (PFRDA) chairman Supratim Bandyopadhyay told FE. Higher tax-saving potential and attractive returns vis-à-vis other traditional products are seen spurring demand for NPS, he added.

Despite the pandemic, nearly 6 lakh new private subscribers (corporate employees and citizens) joined the NPS in FY21, up from about 5 lakh in FY20, Bandyopadhyay said.

As on June 12, 2021, the private sector subscriber base stood at 28.86 lakh with 40% of them joining in the past two years.

With the government sector reaching near saturation, private sector, which hitherto was 7% of total subscriber base, holds key to the growth of NPS as well as expansion of old age income for masses. To make the scheme even more attractive, the pension regulator is in discussion with the Union government to double the special Rs 50,000 annual deduction from income allowed for contribution to NPS as well as to exempt income tax on annuity incomes.

According to extant norms, at the time of exit from NPS, a subscriber gets 60% lump sum in cash and balance 40% must be used to buy annuities for regular income till death of subscriber and his/her spouse; thereafter principal amount is returned to nominees. “There is no GST levied when subscribers convert 40% corpus into annuity from NPS whereas 1.8% tax is levied on similar products offered by insurance companies,” Bandyopadhyay said.

Similarly, he is in dialogue with the government to exempt income from annuities, which are on a downward trend due to the current low interest rate regime, by enhancing the exemption limit for senior citizens whose primary source of income is from annuities and interest from investments, etc, he said. Currently, annuities are fetching only 5.2-6% returns, which subscribers detest as post-tax the real returns would be negative in the current inflation scenario of 6% or thereabouts.

“If somebody is earning up to Rs 10 lakh annually and most of the income is either from pension or other conventional interest bearing products, the government can have a look if exemption can be given as these people have a lot of spending capacity to boost demand in the economy also,” he said.

The regulator is also exploring giving the option to subscribers to retain the 40% corpus in the NPS system under a systemic withdrawal plan to give higher returns to subscribers, who may not want to buy annuities. The 40% annuity system is seen to have dissuaded a section of potential NPS subscribers from signing in.

Similarly, it is is touch with insurance regulator to explore the possibility of an inflation-indexed annuity products for people who understand the complexities.

He said NPS returns are “far better than” other superannuation funds when it comes to post-tax returns. For example, one year return from the government sector subscribers was 12.6% under NPS while it was 8.5% under EPFO and around 8% given by couple of superannuation funds run by insurance companies, he said.

“Many superannuation funds which were traditionally managed by insurance companies, are now shifting to NPS. One of course is the income tax benefit at the time of contribution and second the kind of returns NPS gives,” the PFRDA official said. In the last 10 years, the average annual returns of NPS has been over 10%, he said.

With a relative young subscriber base and likely addition of 1 crore new subscribers including 90 lakh from the government–backed Atal Pension Yojana for masses, the PFRDA is expecting over 22% growth in fresh fund inflows of about Rs 1.25 lakh crore in FY22. “Depending on market conditions, we may see over 30% growth in asset under management to somewhere near Rs 7.5 lakh crore in FY22,” Bandyopadhyay said.

Since the defined contributory pension system was rolled out from January 1, 2004, to contain pension bill, about 21.83 lakh central government employees and 52.51 lakh state government employees are enrolled in the scheme with 82% share in NPS AUM as on June 12, 2021. About 2.84 crore people are enrolled under Atal Pension Yojana or APY, which is a government backed pension scheme for the masses.

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