After stagnating for more than a decade, the National Pension System (NPS) was gaining traction in the private sector with about 10 lakh new subscribers anticipated to join it in FY22, Pension Fund Regulatory and Development Authority (PFRDA) chairman Supratim Bandyopadhyay told FE. Higher tax-saving possible and eye-catching returns vis-à-vis other classic goods are seen spurring demand for NPS, he added.
Despite the pandemic, practically 6 lakh new private subscribers (corporate staff and citizens) joined the NPS in FY21, up from about 5 lakh in FY20, Bandyopadhyay stated.
As on June 12, 2021, the private sector subscriber base stood at 28.86 lakh with 40% of them joining in the previous two years.
With the government sector reaching close to saturation, private sector, which hitherto was 7% of total subscriber base, holds crucial to the development of NPS as nicely as expansion of old age earnings for masses. To make the scheme even more eye-catching, the pension regulator is in discussion with the Union government to double the unique Rs 50,000 annual deduction from earnings permitted for contribution to NPS as nicely as to exempt earnings tax on annuity incomes.
According to extant norms, at the time of exit from NPS, a subscriber gets 60% lump sum in money and balance 40% need to be used to acquire annuities for common earnings till death of subscriber and his/her spouse thereafter principal quantity 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 stated.
Similarly, he is in dialogue with the government to exempt earnings from annuities, which are on a downward trend due to the present low interest price regime, by enhancing the exemption limit for senior citizens whose major supply of earnings is from annuities and interest from investments, and so forth, he stated. Currently, annuities are fetching only 5.2-6% returns, which subscribers detest as post-tax the genuine returns would be damaging in the present inflation situation 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 stated.
The regulator is also exploring providing the choice to subscribers to retain the 40% corpus in the NPS method beneath a systemic withdrawal program to give larger returns to subscribers, who might not want to acquire annuities. The 40% annuity method is seen to have dissuaded a section of possible NPS subscribers from signing in.
Similarly, it is is touch with insurance coverage regulator to discover the possibility of an inflation-indexed annuity goods for persons who fully grasp the complexities.
He stated NPS returns are “far better than” other superannuation funds when it comes to post-tax returns. For instance, one year return from the government sector subscribers was 12.6% beneath NPS whilst it was 8.5% beneath EPFO and about 8% provided by couple of superannuation funds run by insurance coverage corporations, he stated.
“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 stated. In the last 10 years, the typical annual returns of NPS has been more than 10%, he stated.
With a relative young subscriber base and most likely addition of 1 crore new subscribers which includes 90 lakh from the government–backed Atal Pension Yojana for masses, the PFRDA is expecting more than 22% development 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 stated.
Since the defined contributory pension method was rolled out from January 1, 2004, to include pension bill, about 21.83 lakh central government staff and 52.51 lakh state government staff are enrolled in the scheme with 82% share in NPS AUM as on June 12, 2021. About 2.84 crore persons are enrolled beneath Atal Pension Yojana or APY, which is a government backed pension scheme for the masses.