Pension system: Public sector enterprises encouraged to join NPS, Finance ministry sends letters

The Finance Ministry's Department of Public Enterprises (DPE) has written to various ministries and government departments to sensitise the Central Public Sector Enterprises (CPSEs) under their ambit about the benefits of adopting National Pension System (NPS). Till the last quarter of FY24, 76 CPSEs adopted NPS to extend the pension benefit to their employees.

The latest letter has been sent to the Chief Executive Officers of about 120 CPSEs, a report in the Hindu Businessline said.

NPS was made mandatory for all Central government employees (except armed forces) who joined service on or after January 1, 2004. Since May 1, 2009, the NPS has been available to every citizen on a voluntary basis, including corporates. 

The NPS assets under management (AUM) saw a 27 per cent year-on-year growth to Rs 11.89 lakh crore as of May 4, 2024. The overall AUM, including that of Atal Pension Yojana (APY), also saw a surge when compared to the end of March 2024 level of Rs 11.73 lakh crore. The Atal Pension Yojana (APY) was launched on June 1, 2015, for unorganised sector workers. 

The number of new NPS and APY subscriber registrations till May 6 this year stood at 82,061, PFRDA data showed.

As of May 4, the number of subscribers in the non-government sector had grown 8.76 lakh year over year, while the increase in the government sector was just 7.14 lakh.

In FY24, 9.47 lakh new subscribers adopted NPS from the non-government sector. Of these new subscribers, 8.10 lakh were from the ‘all citizen model' and 1.37 lakh were corporate employees.

The overall robust growth in NPS assets in recent years has been driven by both buoyant equity markets and a widening NPS subscriber base as more working-age Indians take up retirement planning seriously.

The non-government sector saw a 37.89 per cent year-on-year growth in its NPS assets to Rs 2.32 lakh crore, as of May 4. On the other hand, the government sector’s NPS assets were up 24.45 per cent to Rs 9.16  lakh crore. The number of new government employees who onboarded NPS in fiscal 2023-24 stood at 7.10 lakh. 

The corporate component is voluntary in nature and includes people working in public sector organisations, private limited companies or public sector banks, among others.

In the most recent fiscal year, the corporate component of the program experienced a downturn. This decline can be attributed to changes in the tax framework; unlike its predecessor, the new regime does not offer incentives for contributions to the pension plan. Previously, corporate sector employees with annual earnings of up to Rs 7 lakh could reduce their taxable income through investments in the NPS.

The NPS is one of the schemes that can avail exemptions under both tax regimes. Under the old tax regime, NPS offers tax benefits under three sections of the Income Tax Act, 1961. Under the new tax regime, a deduction under Section 80CCD (2) of the Income Tax Act by investing in NPS can be availed. This deduction from gross total income can be claimed if the employer makes a contribution to the NPS account on behalf of the employee.

Under the new tax regime, the NPS-related deduction under Section 80CCD (2) of the Income-tax Act, 1961, was allowed under the New Tax Regime. Under this regime, the deduction is on the employer's contribution to the employee's NPS account. Section 80CCD(2) applies to only salaried individuals and not to self-employed individuals. The deductions under this section can be availed over and above those of Section 80CCD(1).