The government’s two flagship pension plans, the National Pension System (NPS) and the Atal Pension Yojana (APY) have witnessed tremendous growth in the last few years. According to the Reserve Bank of India’s Financial Stability Report (FSR) in June, the total subscribers in these schemes have grown to 7.35 crore with Rs 11.72 lakh crore assets under management (AUM). Unlike NPS, which is open to all, from government and private sector employees to self-employed or unemployed, APY is exclusively for people in the unorganised sector.

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NPS data shows that there has been a 39.68 per cent growth year-over-year in AUM for private sector employees as of June 15, 2024, compared to 25.64 per cent AUM growth for central and state government employees. It is a significant AUM growth for pension plans in a year.

Data shows there has been a 14.64 per cent growth in corporate subscribers in a year compared to only 8.36 per cent increase in government subscribers as of June 15, 2024.

Growth In Corporate Subscribers Over Five Years

Subscribers: The number of corporate subscribers which stood at 9.74 lakh on March 31, 2020, reached 19.48 lakh as of June 15, 2024.

AUM: It rose from Rs 41,242 crore AUM a few years ago to Rs1,66,729 crore as of March 31, 2024. On June 15, 2024, corporate AUM reached Rs 1,80,607.42 crore.

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Why Are More Corporate Employees Investing In NPS?

There could be two possible reasons. One is the availability of the NPS option in more private companies, and the other is the return on the scheme. While it is mandatory for companies employing 20 or more people to offer them the Employees’ Provident Fund (EPF) scheme, NPS remains optional. However, the Pension Fund Regulatory and Development Authority (PFRDA) has been making efforts to make the NPS scheme available to more corporate employees.

One of the most compelling reasons to consider NPS over EPF is the return it offers. In the last few years, NPS has shown a double-digit growth that surpasses what EPF can provide. The NPS portfolio, which is a blend of equity and debt (government and corporate), can generate a return based on the subscriber’s investment choice (auto and active). In a rising market, NPS equity returns have been in the range of 32 per cent to 42 per cent annually. Over the past five years, NPS pension fund managers have generated around 18-20 per cent returns over the past five years; in 10 years, it has been between 13 and 14 per cent, according to NPS Trust data.     

What sets the NPS apart is its unique structure. It incorporates equity investment and provides a range of investment and withdrawal options, offering investors a level of flexibility not found in other schemes.

NPS offers an additional Rs 50,000 tax benefit to subscribers under Section 80CCD (1B) that is over and above Rs 1.5 lakh annual exemption under Section 80C of the Income-tax Act, 1961. However, these tax benefits are not available in the new tax regime. Also, NPS is not a defined pension scheme, and the returns are not guaranteed, unlike EPFs that give guaranteed returns. However, seeing the returns, tax benefits, and flexibility NPS offers, its corporate subscribers and their share of the AUM have been growing steadily.