NEW DELHI: The pension scheme for the corporate and individuals, regulated by Pension Fund Regulatory and Development Authority (PFRDA), may have been hit by the new tax regime, which offers lower tax rates but no exemptions, such as, those for investment.
Latest data released by PFRDA on Thursday estimated that the growth in overall subscriber base, comprising govt, private sector and Atal Pension Yojana, slowed to 16.3% during the last financial year, with the total number pegged at over 7.3 crore. Within National Pension System (NPS), with under 36 lakh subscribers, the share of private sector contributors, comprising the corporate scheme (where the employer and employee contribute) and individual pension accounts, was estimated at 7.5%.
In terms of growth, in the last financial year, for the corporate scheme the pace moderated to 16.1%, the slowest since 2020-21 when Covid-19 took a toll on the economy. The all-citizens model (largely individuals) saw a sharper moderatation in pace of growth to 20.3% in FY24, compared to 29% in FY23 and over 30% in previous four.
Officials and experts blamed it on the new tax regime, a feedback shared by several companies, which were giving the corporate scheme to their employees. Under the new tax regime, which is the default option, there is a tax benefit for employer’s share of contribution to NPS even in the case of private sector employers, but the employee’s share will not get the benefit.
PF and Employees Pension Scheme, which is part of it, being default option across companies is seen as the other stumbling block for the pension system regulated by PFRDA, that is seen to be much more cost effective and has a track record of offering goods returns. “Whenever an employee joins a company, PF papers along with gratuity and other statutory compliances are given to him or her, without even making them aware of other options,” an industry source said.
What is also adding to disinterest even among govt employees and private sector is absence of tax benefit on the additional contribution being made by the employer. When NPS started, the employee and the employer, which is the central and the state govts, were contributing 10% each to the pension corpus. Subsequently, to sweeten the deal, the states and the central govt increased their contribution to 14% of the employee’s salary. But the tax benefit was not extended. At March-end 2024, assets under management under NPS, rose over 30% to 11.7 lakh crore, with govt employees accounting for over three-fourths share, while private sector’s share rose to 19.3%.
