EEE tax status will encourage retail participation in NPS, says PFRDA chief

KR Srivats New Delhi | Updated on December 12, 2018 Published on December 11, 2018

PFRDA chief Hemant Contractor

For govt staff, opting for private pension fund manager is ‘only for incremental flows’

The National Pension System (NPS) will become an attractive proposition for retail investors (non-government subscribers) now that the government has decided to give exempt-exempt-exempt (EEE) tax status for this pension product, a top PFRDA official said.

“The absence of EEE status was a big hindrance for growth of NPS as it was always compared with EPF and PPF. Now NPS is being brought on par with the Employee Provident Fund and Public Provident Fund. One hurdle is out of the way,” Hemant Contractor, Chairman, PFRDA, told BusinessLine.

An EEE status would mean tax exemption at the stage of contribution, accumulation and withdrawal. Currently, both PPF and EPF enjoy EEE tax status.

As on November 30, there were 2.48 crore NPS subscribers with total assets under management of ₹2,80,947 crore.

Timeline for transfer

Contractor also clarified that the Centre’s decision allowing government subscribers to opt for a private fund manager will apply only for fresh inflows.

“As far as the existing balances are concerned and since the amounts are quite large, PFRDA has suggested a time period of five years to transfer the old balances,” Contractor said.

The final circular in this regard is awaited from the government, he said.

Currently, the NPS corpus of government subscribers is managed by three public sector fund managers — pension fund managers of UTI, LIC and SBI.

Following the latest decision, government subscribers of NPS have an option to choose from as many as eight pension fund managers (including private fund managers).

It has now also allowed government employees (NPS subscribers) to invest up to 50 per cent in equities, from the existing cap of 15 per cent. The suggestion of PFRDA in allowing two of the life-cycle funds — conservative (up to 25 per cent equity) and moderate (up to 50 per cent equity) has been accepted, official sources said.

100% in G-Secs

It may be recalled that PFRDA had not recommended the aggressive fund (up to 75 per cent equity). Its other suggestion of allowing up to 100 per cent in government securities in the case of government NPS subscribers has also been accepted now.

Contractor said PFRDA had only received broad communication on the latest government decisions on NPS and was awaiting the fine print.

The latest decision around the NPS has come as a boost for the pension sector what with PFRDA having to wait for a few years to see these come through.

Published on December 11, 2018
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