While implementation of some of the changes has already begun, others such as allowing investors to park their entire corpus into systematic withdrawal plans (SWPs) will require amendments to the law. Currently, NPS subscribers can withdraw up to 60% of the corpus at the time of their retirement and the remaining has to be used to purchase annuities that will fetch them income for the rest of their lives.
With annuities offering 5-6% return in a falling interest rate regime, many investors do not see it as an attractive proposition, prompting Pension Fund Regulatory & Development Authority (PFRDA) to seek inflation-indexed annuities from the insurance regulator IRDAI. The matter is currently being examined by a committee.
In the meanwhile, for those with a corpus of up to Rs 5 lakh, rules will be eased to allow to complete withdrawal of their money. “The notification will be issued in the next few days. An investment of Rs 2 lakh will not get you much via annuities,” Bandyopadhyay said.
Separately, PFRDA has suggested to the government that the annual tax benefit of Rs 50,000 for NPS investment should be doubled. “We are suggesting that the pension coming from annuity should be made tax-free up to a certain level, say, Rs 10 lakh a year. It should be either tax-free or lower tax may be charged… Today, a monthly income of Rs 60,000-70,000 may look decent but 10-15 years down the line, it may not even meet your basic needs. So, indexation and taxation can play a role,” he told TOI. The changes come at a time when several individuals are looking to park a part of their provident fund contribution in other long-term saving instruments after the government changed the tax rules to make the interest on employee contribution over Rs 2.5 lakh taxable.
While NPS was introduced for the private sector nearly 12 years ago, its assets under management (AUM) are under Rs 1 lakh crore, compared to a Rs 7.5-lakh crore corpus with insurance companies.
Bandyopadhyay said PFRDA is also looking to register individuals as points of presence (PoPs) or to be part of the distribution network and is willing to pay a higher commission to expand the base. Currently, banks and institutional entities act as PoPs and are paid Rs 200 to get a new customer and 0.2% of the investment as commission.
“The effort has been to keep the overall cost structure low. It has helped subscribers, but a time has come to encourage the distribution channel to improve the coverage and expand the corpus. Today, the threat of dying early is slowly going away and it is taken over by the risk of living long… We will try to see what best we can give to our distribution partners but I am not sure if we can manage the kind of returns that the insurance industry gives,” the pension regulator said.
Already, fund management fees for fund managers have been increased and PFRDA is looking to expand the number from seven to 10 with the process expected to start at the end of the month. Besides, going forward, licences will be available on tap.
Bandyopadhyay said the regulator is targeting a million new subscribers from the private sector this year, in addition to nine million under Atal Pension Yojana.
“For the first time last year, the number of new customers joining from the non-government sector, which was six lakh, was more than the government sector. This is the trend that we will see in the years to come. Slowly, the non-government sector will not just catch up but the AUM will be higher.”