National Pension System: Market Pulse
Chitra Jayasimha
FIA, FIAI, Actuary and Practice Leader,
Retirement and Investment,
Aon Hewitt
Vishal Grover
Senior Consultant, Retirement and
Financial Management Practice,
Aon Hewitt
Siddharth Saxena
Consultant,
Retirement and Investment,
Aon Hewitt
It has been more than three years since the government
opened the National Pension System (NPS) to the
corporate sector, with the intent of transforming India
from an almost pension-less society to a pensioned
society. As a pure and real pension scheme offered by the
government, NPS has attracted a fair bit of attention.
What is it? NPS in Short
NPS is a defined contribution style superannuation scheme
launched by the government, originally for government
employees in 2004 and subsequently extended to the
citizens of India in 2009 and to the corporate sector
in 2012. Within the corporate sector model, both the
employer and the employee may contribute to the
employee’s NPS account. The contributions made, along
with the returns, will be available to the employee upon
retirement for a combination of options including part
commutation and purchase of annuities.
Up to 10% of the basic salary per annum can be
contributed by the employer on behalf of the employee
and the entire contribution does not attract tax in the hands
of the employee. The same contribution by the employer
is also allowed as a business expense. Additionally, an
employee's own contribution is eligible for tax deduction
for up to 10% of the basic salary, with an overall ceiling
of `1.50 lacs under Sec. 80 CCE of the Income Tax Act.
From FY2015-16, an employee will also be allowed a
tax deduction in addition to the deduction allowed under
Sec. 80CCD(1) for additional contribution to his/her NPS
account, subject to a maximum of `50,000/- under Sec.
80CCD 1(B). As such, effective tax benefits on investments
has increased to `2.00 lacs from the current financial year.
In addition to the attractive tax benefits for both the
employer and employee, the NPS also scores in other key
parameters. These include:
- High portability with a unique NPS account number
provided to each employee, which allows for easy
transferability during change in employment
- High flexibility in terms of choice of fund managers
and asset classes
- Exposure to market and equity linked returns
- Regulated by the statutory body – The Pension Fund
Regulatory and Development Authority (PFRDA)
- NPS is one of the lowest costing pension schemes in
the world in terms of fund management and
administrative charges
Market Prevalence
As seen alongside, the NPS corporate registrations and
assets under the management have been showing healthy
growth rates over the last few years. As on March 31, 2015,
3,73,273 corporate employees were covered under the NPS.
However, it should be noted that while more than
1,600 corporates have registered under the scheme, not
all may have started contributing on behalf of their
employees.
If we also include government employees and private
individuals, the total member subscriptions would stand
at 87,48,649 and the total assets under management
would be `80,855 crores as on March 31, 2015.
Aon Hewitt NPS Benefits Survey 2015
Aon Hewitt conducted a market pulse study to draw
insights and feedback from corporate employers, both
subscribers and non-subscribers to NPS.
There were a total of 138 companies who participated
in the survey, with maximum participation from BFSI and
IT/ITeS sectors.
Approximately 33% of the survey respondents were
enrolled for NPS, with BFSI and FMCG/FMCD companies
driving this number.
In terms of the implementation strategy adopted by
employers, the key insights drawn from the survey are:
- Two-thirds of the companies who have enrolled for NPS
have offered the benefit to all their employees
- The majority of subscribing companies have included
the NPS benefit as a part of their flexible compensation
structure, where an employee can choose whether or
not to opt for this benefit
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