Aided by the acceleration in new enrolments under corporate, citizen and Atal Pension Yojana schemes, contributions to the National Pension System (NPS) rose 22.6% on year to Rs 6.57 trillion as on March 31, 2023, while assets under management (AUM) rose 22% to Rs 8.98 trillion.
After stagnating for over a decade, the NPS is gaining traction in the private sector with corporate sector subscriber enrolment rising about 20% in FY23 to 1.68 million. Higher tax-saving potential and attractive returns vis-à-vis other traditional products are seen as spurring demand for NPS. The corporate sector’s NPS contribution rose 33% on year to Rs 90,810 crore as on March 31, 2023.
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Corporate sector subscribers grew by 20% on year in FY23 to 1.69 million while individual enrolments (other than the government-supported Atal Pension Yojana) grew 29% on year to 2.96 million. On the other hand, the central government employee subscribers rose by 5% on year to 2.4 million as on March 31, 2023, while state government subscribers base grew by 9% to 6.1 million.
As on March 31, 2023, the private sector subscriber base (corporate and individuals) stood at 4.64 million with 40% of them joining in the past two years.
With the government sector reaching near saturation, the private sector, which hitherto was a little over 7% of the total subscriber base, holds key to the growth of NPS as well as the expansion of old age income for masses.
Under Atal Pension Yojana (APY) for unorganised sector workers with assured pension between Rs 1,000 and Rs 5,000/month, 9.67 million new subscribers were added in FY23, a jump of 26.7% on year.
In the total NPS AUM of Rs 8.98 trillion, the Centre and states together have nearly 79% share while the private sector has about 18% share.
At the same time, to ensure more state governments don’t revert to the non-contributory old pension system (OPS) from contributory NPS (both employer and employee contribute), the finance ministry recently set up a four-member panel headed by finance secretary TV Somanathan to suggest ways for higher pensionary benefits to the government employees mandatorily covered under NPS.
While ruling out reversing the pension reforms and going back to the fiscally-disastrous unfunded OPS, which entails up to 50% of the last pay drawn as pension from the Budget to the pre-2004 staff, the Centre is conscious of the increasing resonance of demand for OPS amid a spate of state/general elections in 2023-2024. The panel might suggest guaranteeing pension similar to OPS in a graded manner but without reverting to a fiscally-disastrous non-contributory system.
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According to extant norms, 60% of the accumulated NPS corpus from contributions during a person’s working years is allowed to be withdrawn at the time of retirement. Such withdrawal is also tax-free. The balance 40% is invested in annuities, which, according to an estimate, could provide a pension equivalent of about 35% of the last pay drawn. However, it is not a guaranteed pension as returns are linked to markets.
Keeping electoral gains in mind, many Opposition-ruled states — Rajasthan, Chhattisgarh, Jharkhand and Punjab — have announced a return to OPS. Two states have stopped fresh contributions to NPS in FY23 for their staff after they reverted to the non-contributory OPS.