21% fewer fresh corporate subscribers join national pension system in 2023

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The National Pension System (NPS) added 21.5 per cent fewer fresh subscribers under the corporate segment in 2023 compared to the preceding year.

Government officials and experts attribute it to the higher exemption limit of income tax of Rs 7 lakh announced in the FY24 Budget that no more requires employees under this income bracket to opt for NPS for tax-saving purposes.

Data collated from the Ministry of Statistics and Programme Implementation (MoSPI) reveals that the corporate component is voluntary in nature and saw 158,212 new subscribers in 2023 compared to 201,517 during 2022. This segment mainly comprises employees in the public sector, public sector banks and private limited companies, among others.

“People enrolled under the corporate component of the NPS to take tax benefits see it as a tax-saving instrument rather than a long-term pension or savings product. So, when the finance ministry raised the exemption limit in the last Union Budget, people belonging to these income slabs saw no incentive to enrol under the NPS. That is what explains this sharp decline in enrolment,” an official told Business Standard.

During Budget 2023, Finance Minister Nirmala Sitharaman had announced changes in income tax slabs and rebate limits.

Under the new income tax regime, the exemption limit was raised to Rs 7 lakh from Rs 5 lakh, indicating that a person who earns less than Rs 7 lakh annually need not invest to claim exemptions. And, the entire income would be tax free irrespective of the quantum of investment made by such an individual.

Deepesh Raghaw, a Sebi-registered investment advisor, said the move gave more consumption power to the middle-class. They could spend the entire income without bothering about investment schemes.

“Due to lack of awareness, people mainly deploy NPS to earn tax rebates available under various sections of the Income Tax Act. In India, where it is absolutely necessary for people to save and invest for their future pension needs, the diversion of people away from NPS is concerning,” he added.

Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS came into effect from January 2004 for central government employees, except the armed forces. It is designed on a defined contribution basis as both the subscriber and employer contribute equally to a person’s account.

In order to facilitate the organised entities, including public sector organisations, to extend the old-age social security benefits to their employees and co-contribute for their pension, a customised and voluntary version of NPS, known as NPS-Corporate Sector Model, was introduced in December 2011.

“In all its years of operation, NPS has suffered due to the lack of awareness among employees and poor product placement in the market. People look at pension planning through the prism of tax planning. It is time we position it differently, other than a tax-saving instrument,” the official quoted earlier added.

Meanwhile, the number of fresh subscribers in the government sector, including the central and state governments, increased in 2023.

Fresh subscribers grew by 58 per cent under the central government to 186,805 in 2023 from 118,020 in 2022. It was up 17 per cent under the state governments to 526,893 from 447,780 during the same period.

Since the Union government has mandated the NPS for all its new employees, it also reflects fresh recruitment at the central level.

A few states like Himachal Pradesh, Jharkhand, and Punjab announced a return to the Old Pension Scheme (OPS), thereby abandoning NPS. So, it cannot be used as a metric to gauge hirings at the state level.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, M.com) having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, M.com) having 15 years of experience. Educator and Digital Creator

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