NPS Is Low Cost, Transparent And Offers Good Returns, Says CEO Ananta Gopal Das
The National Pension System (NPS) is a small retirement savings scheme open to government employees and the general public.
The National Pension System (NPS) is a small retirement savings scheme open to government employees and the general public.
National Pension System: Pension Product
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Most young Indians don’t think of retirement planning and are more interested in spending on discretionary items like mobile phones and motorcycles, and waste time until it is too late to reap the maximum benefit of the compounding power in the market, said Ananta Gopal Das, CEO of NPS Trust and executive director of the Pension Fund Regulatory Development Authority (PFRDA), at the Retirement Roadmap 2025 seminar organised by Max Life in Aero City, Delhi.
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Das highlights that a study by the financial services company Mercer shows that income from a single source may not be sufficient after retirement. “The research shows that you need at least 3-4 kinds of investment to give you a replacement rate. Say, if you earn Rs 5 lakh a month now, after retirement, it should be at least 50-60 per cent of earnings, which is the replacement rate, and it cannot be substituted by only one kind of service,” said Das at the event on Saturday.
Due to the improvement in healthcare facilities and longer life expectancy, which has increased from an average of 62-63 years to 74 years and is expected to touch 80 years and above soon, the need for adequate savings has never been more critical. So, a person retiring at 60 will have 20-25 years more to live. Currently, 1 in 10 people is above 60, said Das. By 2050, he said, it will be 1 in 5 people. So, the population of senior citizens will almost double by 2050.
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Also, consider that unlike in a joint family, the rise of nuclear families has brought retirement planning to the centre stage of financial decision-making. Most parents no longer live with their kids, who could provide regular financial support. So, for them, retirement savings have become a life-or-death situation. Moreover, according to Das, most government employees don’t get pensions these days, making retirement savings necessary for many people.
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In 2004, the government rolled out the national pension system (NPS), as the old pension scheme had burdened the exchequer. As a solution, it introduced a contributory scheme called NPS, in which the employee and the employer both contribute towards the retirement corpus.
As of 2014, Das said NPS had assets under management (AUM) worth Rs 46,000 crore, which has now grown to Rs 11.50 lakh crore. Das said, “In 2023-24, 3,112 new corporates and around 1.4 lakh of their respective employees joined the NPS. Though almost 16,000 corporates joined NPS, the pick-up rate is very low because it is voluntary.” He called for increasing awareness to address this issue. Separately, PFRDA conducts various awareness programmes about NPS.
According to him, those who haven’t invested until their late 40s have lost the opportunity to tap the compounding power forever. Das emphasised diversification to strengthen the retirement portfolio. “Annuity rates are always in the 5-6 per cent range. So, you cannot afford to have only one kind of investment. If you invest in different categories, some will give you higher returns, some will give moderate returns, and some will not, so if you have invested in different assets, the chances of them giving you a decent income increases.”
Das also informed that PFRDA is considering an auto-opt-in and opt-out option for enrolment and exit in NPS. However, the debate over whether it should be auto-enrolment is ongoing.
Also Read: How Are Gifts Taxed? All You Need To Know
“There are mutual fund schemes in the market, but they are not purely retirement. They are probably savings cum investment products. They also allow you to take out the whole fund in a lump sum if you wish to. And that’s not the kind of pension we are talking about. Pension should be a pure pension. It may be 40 or 30 per cent of the corpus, whatever applies to you, but that must be a mandatory pension”.
He stated that in the last 10 years, NPS had provided returns at more than 10 per cent compound annual growth rate (CAGR) compared to annuities. He stressed that NPS is the world’s cheapest pension product and is “an outlier in that sense.”
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