Aided by strong response from individuals and their increasing propensity to create a ‘nest egg’ for their golden years, the National Pension System (NPS) is on a roll with both ‘corporate model’ and ‘all citizens model’ categories recording strong year-on-year growth in AUM at 35 per cent and 37 per cent, respectively, as of March 4, PFRDA data showed. 

This performance also comes at a time when there is clamour by government employees in some States to revert to the old pension scheme, which being a defined benefit scheme and mostly unfunded liability for the exchequer ends up blowing a hole in the balance sheets of the governments. As many as five States — Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh — have already conveyed their intent to the Central government and PFRDA about starting the old pension scheme.

Meanwhile, the strong show on both categories has helped catapult the overall AUM of NPS and Atal Pension Yojana (APY) to ₹ 8.82 lakh crore, up 23.45 per cent on a year-on-year basis as of March 4. 

Rise in subscriber base

The NPS has also witnessed a significant increase in the number of subscribers. It stood at 6.24 crore subscribers as of March 4 this year, against 5.09 crore last year.

While the AUM of ‘corporate model’ grew 35 per cent y-o-y at ₹ 1.15-lakh crore as of March 4, growth in ‘all citizens model’ was 37 per cent year-on-year at ₹ 41,303 crore, official data showed. 

The overall AUM of the NPS has been steadily increasing over the past few years, indicating that more and more individuals are choosing the NPS as their retirement savings option. The AUM has grown at a compounded annual growth rate (CAGR) of around 28 per cent over the past five years.

The two-decade-old NPS now manages over ₹8.8-lakh crore for a 6.24 crore subscriber base, which is quite creditable compared to the ₹11-lakh crore managed by the Employees Provident Fund (EPF) for about 26 crore legacy subscribers.

Preference for market-linked investments

The strong performance of NPS is also some indication that young investors are showing preference for market-linked investments over fixed return vehicles.

Part of the reason for the strong show in NPS is increased awareness post-Covid among the retail segment to secure their financial future post retirement. Financial security of family has become a key life goal for millions of Indian middle class households after the pandemic. 

One of the reasons for the strong performance on the ‘all citizen model’ front is PFRDA’s decision in June 2021 to allow individuals to work as distributors of pension products, said sources. Earlier, only institutions were given the licences for distribution, and the regulator had allowed entities such as banks, NBFCs and certain non-bank entities categorised as Points of Presence (PoP), to distribute pension products, they added.

NPS is defined contribution pension system, which means the pension benefits are determined by the amount of contributions made by the individual and the performance of the investments made by the pension fund. 

Corporate NPS scheme

Under the corporate model, employers can enroll employees in the NPS and make contributions to their retirement savings accounts.

The corporate NPS scheme offers several benefits to employees, including portability, flexibility, and tax benefits. Employees can choose from a variety of investment options, including equity, corporate bonds, and government securities, and can also change their asset allocation based on their risk appetite and investment goals.

All citizen model

The all citizen model is designed for all citizens of India, including both employed and self-employed individuals. Under this model, any individual between the ages of 18 and 65 years can open a Tier-I pension account with a Pension Fund Regulatory and Development Authority (PFRDA) registered Point of Presence (PoP).

In the all citizen model, the individual has the flexibility to choose their pension fund manager, investment scheme, and asset allocation pattern.

The all citizen model of NPS is regulated by the PFRDA, and the contributions made by the individual and their employer (if applicable) are invested in a mix of equity, debt, and government securities, depending on the individual’s choice of investment scheme.

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