Key Takeaways
- • PFRDA Chairperson Sivasubramanian Ramann said NPS investments can outperform mutual funds over the long term once tax benefits and tax-free scheme switching are factored in.
- • The newly launched NPS Tatkal facility lets customers open pension accounts through UPI applications in three clicks using existing bank KYC records.
- • PFRDA is pitching banks to become the principal distribution channel, offering a point-of-presence commission of about 0.2% of AUM with minimal acquisition cost.
- • PFRDA expects four to five crore new NPS subscribers within two to three years; the system currently has about 1.5 crore government and one crore non-government subscribers.
- • NPS AUM currently exceeds Rs.18 lakh crore and could reach Rs.100 lakh crore by 2040 through organic growth, according to Ramann.
Summary
PFRDA Chairperson Sivasubramanian Ramann said National Pension System (NPS) investments can deliver better long-term outcomes than mutual funds when tax incentives and the ability to switch schemes without capital gains tax are considered. Speaking at the NPS Tatkal launch event before senior bankers and fintech platforms, Ramann said PFRDA had run detailed calculations comparing an NPS subscriber with a mutual fund investor over a longer horizon. "The NPS actually comes out far better than a mutual fund for the simple reason that you can switch your schemes within NPS with absolutely no cost," he said. Mutual fund investors may face capital gains taxation when switching, whereas NPS subscribers can switch without incurring that tax. Tax applies when subscribers receive annuity income, which is taxed at their marginal rate.
The newly introduced NPS Tatkal facility allows customers to open pension accounts through UPI applications in three clicks, using existing bank KYC records. With about 80 crore UPI users, Ramann said the banking system could become the principal distribution channel for NPS. "We don't need to create anything new," he said, describing the approach as building on existing payments architecture, in a manner PFRDA sees as parallel to how UPI transformed payments.
Ramann said banks could acquire NPS customers at practically no cost while gaining deeper customer engagement and cross-selling opportunities. Points of presence earn an annual commission of about 0.2% of AUM, which he said banks should be able to manage within that commission. PFRDA expects four to five crore subscribers over the next two to three years. The system currently has about 1.5 crore government and one crore non-government subscribers, while NPS and Atal Pension Yojana together cover about 10 crore people.
On liquidity concerns, particularly for gig and informal-sector workers, Ramann said UPI could enable small, frequent contributions, with no transaction charge under NPS. He positioned NPS as complementary to mutual funds, noting that NPS is relatively illiquid by design to encourage saving, while mutual funds offer liquidity. NPS AUM, currently above Rs.18 lakh crore, could reach Rs.100 lakh crore by 2040 through organic growth, a milestone PFRDA's financial inclusion efforts could accelerate, he added.
The newly introduced NPS Tatkal facility allows customers to open pension accounts through UPI applications in three clicks, using existing bank KYC records. With about 80 crore UPI users, Ramann said the banking system could become the principal distribution channel for NPS. "We don't need to create anything new," he said, describing the approach as building on existing payments architecture, in a manner PFRDA sees as parallel to how UPI transformed payments.
Ramann said banks could acquire NPS customers at practically no cost while gaining deeper customer engagement and cross-selling opportunities. Points of presence earn an annual commission of about 0.2% of AUM, which he said banks should be able to manage within that commission. PFRDA expects four to five crore subscribers over the next two to three years. The system currently has about 1.5 crore government and one crore non-government subscribers, while NPS and Atal Pension Yojana together cover about 10 crore people.
On liquidity concerns, particularly for gig and informal-sector workers, Ramann said UPI could enable small, frequent contributions, with no transaction charge under NPS. He positioned NPS as complementary to mutual funds, noting that NPS is relatively illiquid by design to encourage saving, while mutual funds offer liquidity. NPS AUM, currently above Rs.18 lakh crore, could reach Rs.100 lakh crore by 2040 through organic growth, a milestone PFRDA's financial inclusion efforts could accelerate, he added.
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