New Delhi, India: The Pension Fund Regulatory and Development Authority’s pension scheme, catering to both corporate entities and individuals, might be impacted by the new tax regime, which offers lower tax rates but eliminates exemptions like those for investments. According to the latest data released by the authority on Thursday, the growth in the overall subscriber base, including government employees, private sector workers, and participants in the Atal Pension Yojana, slowed to 16.3% during the last financial year, totaling over 73 million individuals.
Within the National Pension System (NPS), which has under 36 million subscribers, the private sector contributors, encompassing the corporate scheme where both the employer and employee make contributions, accounted for 7.5% of the total. The growth in the corporate scheme saw a decrease in pace to 16.1% in the last financial year, the slowest since 2020-21 when the economy was impacted by the Covid-19 pandemic. On the other hand, the growth rate for the all-citizens model, largely consisting of individual contributors, dropped to 20.3% in FY24, down from over 30% in the previous four years.
Experts and officials attribute this slowdown to the implications of the new tax regime, a sentiment echoed by numerous companies offering the corporate scheme to their employees. Under the new tax structure, there is a tax benefit for the employer’s contribution to NPS in the case of private sector employers, but the employee’s share does not receive the same benefit. Additionally, the Provident Fund and Employees Pension Scheme, being the default option in many companies, poses a hindrance to the NPS, despite its cost-effective nature and history of providing good returns.
The absence of tax benefits on additional employer contributions and the lack of extended tax benefits on employee contributions have also contributed to the waning interest among government and private sector employees. As of March 2024, assets under management in the NPS grew over 30% to 11.7 trillion rupees, with government employees holding over three-fourths of the share and the private sector’s share increasing to 19.3%. The pension system regulated by the Pension Fund Regulatory and Development Authority is currently facing challenges in attracting and retaining participants due to the implications of the new tax regime and existing preferences for other retirement savings options.