There has been a notable 19 per cent drop in new subscribers under the corporate segment of the National Pension System (NPS) during the first half of the current financial year (FY24) compared to the same period last year, according to recent data from the Ministry of Statistics and Programme Implementation. This decline is primarily attributed to the significant change in the income tax landscape announced in this year’s Budget. The higher exemption limit of Rs 7 lakh means individuals in this income bracket no longer feel compelled to opt for NPS as a tax-saving instrument.
According to the data, the corporate component of NPS, which largely comprises voluntary subscribers from central and state public sector undertakings, as well as private sector employees, witnessed 96,937 new enrollees in the initial six months of FY24, a substantial decrease from the 119,754 new subscribers recorded during the corresponding period in the previous year.
Tax saving or investment tool?
The perception of NPS primarily as a tax-saving tool, rather than a comprehensive long-term pension and savings product, has led to this decline. The Finance Minister’s decision to raise the income tax exemption limit to Rs 7 lakh, allowing individuals earning less than this amount to enjoy full tax exemption without additional investments, has reduced the attractiveness of NPS for this demographic.
The National Pension System, managed by the Pension Fund Regulatory and Development Authority, operates on a defined contribution basis, with equal contributions from both the subscriber and the employer. Introduced in December 2011, the NPS-Corporate Sector Model aimed to provide organised entities, including public sector organisations, the flexibility to extend old-age social security benefits to their employees.
The recent decline in NPS subscribers within the corporate segment raises questions about the scheme’s traction among corporates. Calls for strategic repositioning to emphasise the broader benefits of NPS beyond tax incentives are growing louder. As discussions continue, stakeholders are advocating for increased awareness and a more appealing product placement to revitalise interest in NPS among potential subscribers.
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