The upper age limit for joining the National Pension System (NPS) has been raised to 65 years from the current 60, the finance ministry said on Wednesday. Those eligible under the NPS include the self-employed and non-government employees.
PFRDA Chairman Hemant Contractor had earlier made the announcement at a conference in September and said the pension regulator's board had already approved the change and it would be notified shortly.
"NPS is currently open for people between 18 and 60, and our Board has approved raising the age limit for joining to 65," Contractor said. "The scheme anyway has the option of continuing and making contributions up to the age of 70."
Explaining that the rationale behind government reforms in pensions is to facilitate "portability", or the transfer of superannuation funds by making the NPS more attractive and customer-friendly, he said the measures were designed to give the pension scheme an "unbundled architecture to make it as competitive as possible".
“The aim is to open up pensions to sectors that are without pensions,” he said, noting that only 15-16 percent of employees in India are covered by pensions because an overwhelming 85 percent of the workforce is found in the unorganised, or “informal”, sector.
Elaborating on the benefits of the NPS, Contractor said it is the "lowest-cost pension product in the world today".
"Costs are important because even one percent difference in cost over 25-30 years, makes around 15-16 percent difference at the end because of the compounding factor."
"Our fund management charges are a miniscule 0.01 percent... the lowest, when you compare others charging 0.4 or 0.5 percent," he said, adding that the NPS returns compare with the "best in the industry".
The regulator also said that PFRDA had asked the Central Board of Direct Taxes (CBDT) to provide a blanket approval for the transfer of superannuation funds to the NPS, but was still awaiting a response from the CBDT. He suggested that companies should individually take up this matter with the CBDT, as the PFRDA is yet to hear from the income tax department.
Contractor explained that NPS enjoys special privileges on income tax that are not available to any other capital market instrument.
NPS has emerged as a scheme for income security of senior citizens, said the PFRDA Chairman, adding that it had seen "good growth over the last one-two years".
"In 2016, the individual schemes grew by over 100 percent," he said.
There are various investment options available to an NPS subscriber ranging from equity and secure government bonds to life-cycle funds. Equity investment of a subscriber's funds can go up to 75 percent of their contribution if one chooses the life-cycle fund. It also offers less risky options with a heavy component of fixed income investment.
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