High returns, low uptake: Can NPS crack the retirement puzzle?

NPS, budget 2025, household savings
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Despite the government’s best efforts to promote the National Pension System (NPS), there has been a fall in new subscriber enrolment during the first half of the current financial year (2023-24), specifically in the corporate segment. Data from the ministry of statistics and programme implementation (Mospi) reveals a 19% fall in new subscribers compared with the same period last year. This decline is largely attributed to the recent increase in the income tax exemption limit to Rs 7 lakh, announced in this year’s Union Budget.

Corporate subscribers, who predominantly join voluntarily, include employees of central and state public sector undertakings, as well as those in the private sector. The government notes that the revised exemption limit reduces the need for these employees to opt for National Pension System for tax-saving purposes, leading to fewer new enrolments. In the first six months of the financial year, the corporate sector added 96,937 new subscribers, a fall from the 119,754 new subscribers in the same period last year.

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A government official explained that those enrolling in the corporate component of the NPS typically seek tax benefits, which are not as compelling in a long-term pension or savings product. With the exemption limit increase, individuals earning less than Rs 7 lakh annually no longer need to invest in NPS to claim tax exemptions, as their entire income becomes tax-free regardless of investment.


The NPS-Corporate Sector Model, launched in December 2011, allows organised entities, including public sector organisations, to offer old age social security benefits to their employees. It includes flexible contribution amounts from both employee and employer.

The National Pension System (NPS), introduced as an alternative to the Old Pension Scheme (OPS), seeks to alleviate government pension liabilities by encouraging voluntary individual contributions. Subscribers can determine their monthly savings, thereby building a retirement corpus. NPS operates on a defined contribution basis, with equal contributions from the subscriber and employer. It offers investment options in four asset classes: equity (E), corporate debt (C), government securities (G), and alternative investment funds (A). Returns on NPS investments depend on market performance, unlike the fixed returns of OPS.

However, investment advisors note that despite NPS’s potential, its uptake is hindered by limited awareness and its use primarily for tax rebates. In India, there is a pressing need for greater pension savings, but NPS struggles with poor positioning and awareness among employees.

The recent decrease in NPS subscription, particularly in the corporate sector, highlights a fundamental challenge: its dependence on tax benefits for adoption. The increased income tax exemption limit to Rs 7 lakh has reduced the immediate tax-saving incentive for many salaried individuals, leading to fewer new enrolments. While NPS offers market-linked returns and long-term financial security, awareness and understanding of its non-tax benefits remain limited. This calls for a shift in emphasis towards educating potential subscribers about the scheme’s long-term value in building a retirement corpus, beyond the immediate tax advantages. 

Regarding the OPS, several states are advocating for its reinstatement, citing concerns about financial security in retirement under National Pension System. The OPS offered a defined-benefit pension, including half the Last Pay Drawn (LPD) at retirement, along with other components like Dearness Allowance (DA).

Despite the decline in corporate enrolments, NPS assets continue to see significant growth, driven by other segments like the “all citizens model.” This indicates potential in NPS beyond tax-driven subscriptions. To capitalise on this, the government and NPS stakeholders need to address awareness gaps and promote the scheme’s broader benefits, such as flexible contributions, market-linked returns, and portfolio diversification options. By emphasising the long-term financial security provided by NPS, alongside targeted outreach efforts, the scheme can attract a wider base of subscribers and contribute meaningfully to India’s retirement savings landscape.

Indian pension funds have experienced robust growth, especially in equities. According to the latest Pension Fund Regulatory and Development Authority (PFRDA) data, equities have yielded an average annual return of 16.94%. As of December 8, this return significantly exceeds that of corporate bonds, government securities, and central and state government schemes. The total assets of the National Pension System, including the Atal Pension Yojana, have surpassed Rs 10.5-lakh crore, reaching Rs 10.7-lakh crore as of December 9, a 25.95% increase year-on-year. It is expected that NPS assets will reach Rs 11-12 lakh crore by the end of March 2024. The growth in NPS assets this fiscal year is notably driven by the ‘Corporate’ and ‘all citizens model’ categories, which grew by 35.55% and 34.49%, respectively.

While challenges remain, particularly in the corporate segment, the overall growth of NPS assets and the robust returns from Indian pension funds paint a promising picture. To achieve its full potential as a social security solution, NPS needs to move beyond its reliance on tax incentives. Focussing on building awareness, educating potential subscribers about its long-term advantages, and addressing concerns surrounding its complexity can pave the way for wider adoption and secure a stable retirement future for generations to come.