21.5% decrease in NPS subscribers in 2023

The National Pension System (NPS) saw a decrease in new subscribers under the corporate segment by 21.5% in 2023 compared to the previous year. This decline is attributed to changes in income tax rules announced in the FY24 Budget, which affected the necessity for employees to opt for NPS for tax-saving purposes.

Corporate Segment Subscribers:

• Data from the Ministry of Statistics and Programme Implementation (MoSPI) shows that the corporate segment, mainly consisting of public sector, public sector banks, and private limited companies, had 158,212 new subscribers in 2023, down from 201,517 in 2022.
• Many employees in this segment viewed NPS primarily as a tax-saving tool rather than a long-term savings or pension plan. With the increase in the income tax exemption limit to Rs 7 lakh, fewer people in this income bracket found it necessary to enroll in NPS for tax benefits.

Changes in Income Tax Rules:

• In the Budget 2023, Finance Minister Nirmala Sitharaman raised the income tax exemption limit to Rs 7 lakh from Rs 5 lakh. This meant individuals earning less than Rs 7 lakh annually no longer needed to invest in schemes like NPS to claim exemptions. Their entire income would be tax-free regardless of their investment.

Impact on Middle-Class Spending:

• Deepesh Raghaw, an investment advisor, noted that this change empowered the middle class to spend their entire income without worrying about investment schemes.

Concerns and Awareness:

• Lack of awareness led many people to primarily use NPS for tax rebates rather than long-term financial planning. This trend is concerning in a country where saving for retirement is crucial.

NPS Overview:

• Managed by the Pension Fund Regulatory and Development Authority (PFRDA), NPS began in January 2004 for central government employees (excluding the armed forces), operating on a defined contribution basis.

NPS-Corporate Sector Model:

• Introduced in December 2011, this customised and voluntary version of NPS aimed to provide old-age social security benefits to employees of organized entities, including public sector organizations.

Government Sector Subscribers:

• Despite the decline in corporate subscribers, fresh subscribers in the government sector increased in 2023.
• Central government subscriptions grew by 58%, reaching 186,805, while state government subscriptions rose by 17% to 526,893.
• The Union government mandated NPS for all new employees, reflecting fresh recruitment at the central level.

State-Level Variations:

• Some states like Himachal Pradesh, Jharkhand, and Punjab reverted to the Old Pension Scheme (OPS), abandoning NPS, making it unreliable as a metric for state-level hiring trends.