New Pension Scheme (NPS) which was a slow starter now has started picking up the pace as subscription of workers from informal sector and its assets has more than doubled in 2011-12.
Corpus from workers in informal sector increased 144% in FY’12 to Rs 251.67 crore. Number of subscribers stood at 74,056 in FY’12 as against 38,693 in FY’11. As of 31 March 2012 NPS is managing total assets worth Rs 17,000 crore against 8,585 crore at the end of March 2011.
NPS is gaining pace as more and more people are seeking protection for old age and also because of impending tax benefits that will be available when Direct Taxes Code (DTC) will be implemented.
NPS which was launched in May 2009 was slow starter due to a belief that it might not be marketed like other saving instruments and due to fixed annual fee of Rs 280 per account.
Experts believe that NPS can help to fund many products that banks are not keen on lending due to mounting bad loans.
NPS can also give good returns compared to other government’s pension plans as in government’s pension plans it is mandatory to invest in sovereign debt and highest rank debt while NPS has no such restrictions and hence, it can invest either in stocks or bonds.
Given that Pension sector has just opened up and 60% of our population is below 30 years of age NPS has huge potential for growth. India have around 40 crore working population and most of them in unorganized sector, and at present less than 15% working population have pension benefits.
At present contribution to and returns from NPS are exempt from tax while withdrawal are taxed as normal income as it falls under the EET, or Exempt, Exempt, Tax, regime.
As per DTC, which is proposed to be implemented from next fiscal, investment under NPS will be exempted from tax at all stages.
NPS also may become popular due to absence of pension products by the life insurance companies. Another attraction of NPS is its low fund management charges of 0.00009%.
Individuals or corporates can subscribe to NPS by contributing a certain sum every quarter and can invest according to their preference. In case where no preference from the subscriber is made, the scheme follows the auto option based on the age of the subscriber.
The amount can be withdrawn at the retirement or at the age of 60, from 40% of the amount subscriber have to buy a annuity from a life insurer and rest 60% is given as lump sum. In case of withdrawal before the age of 60, subscriber has to compulsorily use 80% of the amount to buy an annuity.
Categories: News | Tags: Direct Tax Code, DTC, EET, New Pension Scheme, NPS, Pension Products
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