Given how India’s 60+ population is set to triple by 2050—Crisil estimates a total fiscal burden of 4.1% of GDP by 2030 for old-age pensions alone, compared to the 3.9% fiscal deficit for FY16—the government has done well to encourage the New Pension Scheme (NPS) in the Budget. Apart from more tax exemptions for contributions, subscribers are to be allowed to migrate from the government-run EPFO to the privately-run NPS—when the new legislation is put in place, it needs to clarify this again since one of the reasons for the poor spread of the NPS is that existing EPFO subscribers are not sure they can legally migrate to NPS. While EPFO’s trustees offer a fixed plan for everyone—their insistence on zero-equity also keeps returns low—NPS allows subscribers a choice of fund managers as well as various combinations of debt and equity allocations in their portfolios; the default plan, though, is a zero-equity one. Apart from the EPFO not offering flexible plans for their users, the biggest problem is its inefficiency—the tens of thousands of crore rupees of unclaimed deposits that the EPFO has is testimony to how it has bankrupted those who were forced to deposit savings in the organisation.
A big problem with the NPS, of course, has been the reluctance of banks to offer this product since it offers lower fees than, say, insurance products. But once there are enough subscribers and companies willing to move to NPS, it is certain enough solutions will come up to transfer funds online to pension managers. While the government still needs to clarify that NPS contributions will not be taxable on withdrawal—EPFO withdraws are tax-free on withdrawal—it would do well to also contribute towards annual pension plans of the poor since, as Crisil points out, if the government doesn’t do it now, it will have to once the population of the elderly grows big enough.