The introduction of the National Pension System (NPS) marked a paradigm shift in the pension landscape of the country. It has facilitated the provisioning of old age income security. Initially, NPS was introduced for the Central and State Government employees (from January 1, 2004), and subsequently, it was made available to all citizens of India from May 1, 2009. Recently, Pension Fund Regulatory and Development Authority released its first annual publication of “Handbook of National Pension System Statistics 2023”, which contains a treasure trove of data relating to all three phases of the subscriber journey in the NPS system. Here are some interesting trends.

Steps in right direction

PFRDA regulates the National Pension System (NPS), subscribed by the employees of Govt. of India, State Governments and individuals from the private sector, employees of private institutions/organizations, and individuals from unorganized sectors. PFRDA also administered the Government of India Scheme APY, launched by the Government of India.

Importantly, the All Citizen Model of NPS was extended to all citizens of India on a voluntary basis under the All Citizen Model w.e.f 1st May 2009. While the subscribers have picked up in the All Citizen model, Govt. subscribers, i.e. State Govt. and Central Govt. subscribers put together, are bigger beneficiaries in terms of head count. Low-ticket Atal Pension Yojana (APY) subscribers by numbers are still the biggest in the overall pie.

Young India

NPS is based on a unique individual Permanent Retirement Account Number (PRAN) created for individual subscribers. In this system, a subscriber shall periodically accrete savings into their Permanent Retirement Account (PRAN) while working and use the accumulations at retirement to procure a pension for the rest of their life.

Subscribers in this system enjoy a variety of important facilities and rights, including portability of the NPS account across jobs and the locations, rights and choices regarding selection of Pension Fund Manager(s) and investment schemes, freedom to switch between Pension Funds and service providers, and nationwide access.

Data shows that NPS subscribers in young age groups starting from 18 years to 35 years, now form the biggest pie.

Partial withdrawal reasons

NPS Tier-I accounts allow partial withdrawal after the completion of 3 years. So, a subscriber can withdraw 25% of their own contributions for specific reasons viz illness, disability, education or marriage of children, purchasing property, starting a new venture. A subscriber can partially withdraw up to 3 times during their tenure in NPS.

Home purchase and a child’s higher education seem to be the most used reasons to take money from NPS before tenure.

Changing asset mix

While G-Secs and Corporate Bonds were dominant asset classes in the early days of NPS, Equities have grown popular. G-Secs still hold their position, asset share of Corporate Bonds has fallen while the equity assets of subscribers has risen, as data shows. Other types of asset classes are at a nascent stage right now.

Annuity with return of premium most popular

On completion of 60 years of age (if the subscriber has joined NPS before 60 years of age) or after completion of 3 years (if the subscriber has joined NPS after 60 years of age), the subscriber can withdraw a maximum of 60% of the corpus as lumpsum and minimum 40% of the corpus has to be utilized for purchasing an annuity plan for receiving the pension. What type of annuity is preferred by subscribers? Data shows annuity for life with a return of premium (ROP) is the winner by a big margin.

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