PFRDA seeks tax parity with EPF, PPF on retirement withdrawal

Pension Fund Regulatory and Development Authority (PFRDA) is seeking tax parity for National Pension Scheme (NPS) with that of Employees Provident Fund (EPF) and Public Provident Fund (PPF), particularly with respect of lumpsum withdrawal of fund up to 60 per cent on superannuation,Dr BS Bhandari, Whole-Time Member (Economics) of PFRDA, while addressing CII Financial Distribution Summit organised by the Confederation of Indian Industry (CII).

“We are asking for parity with other competing products like EPF and PPF, where total exemption is available for the withdrawal amount at the time of superannuation. We are seeking this in this budget like we did last year,” Dr Bhandari said.

At present, the beneficiaries are allowed to withdraw only 40 per cent of the total fund on superannuation without tax, 20 per cent more can be withdrawn by paying tax, while the remaining 40 per cent can be invested in annuities.

Responding to a query on demand from NPS subscribers to allow withdrawal of total sum at the time of superannuation, Dr Bhandari said, that should not be allowed considering the nature of the retirement needs. “Pension is basically for lifelong. If they withdraw in lumpsum there is a possibility that they may be left with no money at some point in time much before they cease to live. So that cannot be done for retirement plans,” Dr Bhandari added.

Alternatively we are proposing to allow a portion of the 40 per cent lumpsum to be withdrawn at the superannuation be separated and converted into a systematic withdrawal plan. This is being proposed because the returns on annuity schemes of insurance companies are considered unattractive in several cases when compared to NPS itself, Dr Bhandari explained.

NPS is giving 12.66-12.78 per cent returns based on various calculations over the last five years and over 10.5 per cent returns since inception, that is 2008. “Lowest cost involved in managing of Rs 1.5 lakh crore of assets under management of NPS. This AUM cost can be termed the lowest in the world,” said Bhandari reeling out figures for various components.

On retirement advisors, PFRDA official said that the regulator has been thinking of having a separate category of retirement advisors to take retirement products to private companies and retail sector. And anybody who qualifies for the certification programme, can get registered the regulator as advisor and involve in distribution of retirement products.

“We have broadly three segments. One is the government segment where it is mandatory. For that we don’t need distributors as their contributions are deducted at payroll level. We have private corporate and private retail sectors where we need distributors,” Dr Bhandari said.

Already there are 1.5 lakh bank branches of public sector, private sector, regional rural banks and co-operative banks, and over 18,000 post offices linked through core banking solution (CBS) are working as agents for selling retirement products.