NPS Growth Could Be Multiplied with Withdrawal Flexibility and Tax Incentives, Says Executive

A senior executive believes greater flexibility in retirement withdrawals and restored tax incentives could significantly boost the National Pension System (NPS).

He advocates for allowing NPS subscribers to choose between annuities and a new Retirement Income System (RIS) and reintroducing the Rs 50,000 tax deduction under the new tax regime. These changes, he suggests, could lead to multifold growth in NPS within a few years.

Greater flexibility in retirement withdrawals and restoration of tax incentives under the new tax regime can significantly accelerate growth in the National Pension System (NPS), according to a senior industry executive.

"One major issue is the compulsory 20 per cent annuity requirement. We have suggested PFRDA that with the new Retirement Income System (RIS) for de-accumulation, customers should be allowed to choose between annuity and RIS. If this flexibility is introduced, it would help significantly," Sumit Shukla, Managing Director and Chief Executive Officer of Axis Pension Fund told PTI.

At present, a portion of the NPS corpus is mandatorily used to purchase annuity products at the time of retirement, though the regulator has recently introduced the Retirement Income System (RIS) framework aimed at offering more flexibility in post-retirement income planning.

Shukla also pitched for restoring the additional Rs 50,000 tax deduction for NPS contributions under the new tax regime, saying the absence of the benefit has affected retail traction.

"The Rs 50,000 additional tax deduction available under the old tax regime should be brought into the new tax regime as well. If the government is keen towards building a 'pensioned society', this should come back. Corporate NPS benefits were retained under the new regime, so logically, this benefit should also be there," he said.

"When this deduction existed, we saw strong traction. After the shift to the new tax regime, traction reduced because most people moved there," Shukla said.

On whether reforms such as annuity flexibility and tax parity could materially improve NPS growth, Shukla said, "Absolutely. Growth could become multifold within two to three years."

Shukla also said seamless portability and automatic continuation of pension contributions when employees switch jobs, saying onboarding into the pension system should become part of the employment process.

"When an employee joins a new company, HR should ask for the PRAN number just like they ask for EPFO details. If someone already has a PRAN, contributions should start automatically. If they do not have one, onboarding should happen seamlessly without requiring additional KYC," he said.

Calling for a default participation model, Shukla said, "The idea should be default participation with an option to opt out."