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Source Name: Assocham

Pension Reforms and Government Impetus Needed for NPS Growth

Sep 01, 2014   15:20 IST 

ASSOCHAM calls for incentivisation of the National Pension System (NPS) to make it attractive as a saving avenue. The Governments’ objective of extending social security cover to all citizens and fulfilling the need of higher post retirement income will only fructify if returns on the scheme are market driven.

As on August 7, 2014, NPS had only 7.1 million subscribers and Assets Under Management (AUM) of ~ INR 58,000 Crore, with less than 2 per cent from the unorganized sector. Despite its promising concept and low-cost model, the scheme is yet to take off on a significant scale. The launch of the new user friendly, informative PFRDA website is indeed a welcome step and will provide real time access and information to beneficiaries.

ASSOCHAM recommends the following enablers to provide necessary stimulus to the NPS:

  • Impetus to corporate model: ASSOCHAM suggests that by either rewarding Point of Purchase (PoPs) with higher incentive at the time of sourcing (higher direct deduction from initial contribution amount paid by subscriber or by incentives from the Government) or by providing higher incentive through trail commission, the Government must incentivize the corporate sector, including PSUs, to join and endorse the scheme and significantly strengthen the corporate base, from the current base of mere 1,500 corporates from the private sector

  • Retail Push: There should be additional tax benefits over and above 80C, similar to those extended to infra bonds, to enable mass adoption of the scheme

  • Taxable withdrawals: At present, the corpus generated through NPS is taxable at maturity as opposed to other products like PPF, life insurance schemes etc. To overcome this huge disincentive, it is essential that all these products follow the same norm and even the NPS corpus should be tax free

  • With the likely passage of the insurance bill, the pension sector would also be eligible for 49 percent foreign equity, providing the much needed foreign capital and expertise

  • Issues such as online buying, partial withdrawal, simplified forms and customer service need to be addressed for future success of NPS

ASSOCHAM is fully committed to work the Government and PFRDA to formulate regulations for sound and sustainable growth of the pension system, setting up an efficient and responsive grievance redressal mechanism and encouraging industry participation to develop new products for the benefit of pension subscribers.


Rana Kapoor

President, ASSOCHAM

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