Here’s two major changes for National Pension System (NPS) Which Are Expected In 2023
The government in its constant push to develop the National Pension System (NPS) architecture has announced certain measures which are set to apply from 2023. NPS provides additional tax benefits over and above theose under Section 80C of the Income-tax Act, 1961.
Central, state government and central autonomous bodies employees who are subscribers to NPS will now no longer be allowed to partially withdraw from their NPS account through self-declaration.
On December 23, 2022, the Pension Fund Regulatory Development Authority (PFRDA) said in a circular that all government sector NPS subscribers must now mandatorily submit their partial withdrawal requests through their associated nodal offices.
During the Covid-19 pandemic, PFRDA allowed the government sector subscribers to make partial withdrawals from NPS accounts through self-declaration.
“With the abating of the pandemic-related difficulties relaxation of lockdown restrictions, the issue examined after taking into consideration of the prevalent practices, circumstances and law, it has been decided to make it mandatory for all the government sector subscribers (central/state govt and central/state autonomous bodies) to submit their requests through their associated nodal offices,” PFRDA said in the circular.
Do note that this circular is about government subscribers, hence voluntary non-government NPS subscribers are not affected by it.
PFRDA will launch its first minimum assured return scheme under the NPS for non-government subscribers in May-June 2023. The respective state and central governments will be needing to notify this scheme for their employees to be eligible for this new scheme.
What this new scheme offers is 4 to 5 per cent guaranteed income on the fund invested and this is in addition to whatever returns the said fund generated by investing in the market. The minimum annual contribution for the scheme is Rs 5,000 and the upper age limit for the plan is below 50 years.
PFRDA chairman Supratim Bandyopadhyay told the publication Financial Express that the expense ratio (fund management fee) would be higher than other NPS schemes.
He said the expense ratio, at 25 basis points, is higher due to the scheme’s guaranteed returns despite market risks. The expense ratio in normal NPS schemes is capped at maximum 9 basis points. However, insurance companies charge up to 150 basis points for managing similar guarantee income plans.
Bandyopadhyay also said that the fund managers of this scheme will have a 1.5 solvency ratio, derived by dividing the assets with liabilities. The 1.5 ratio means the fund managers must infuse additional capital to run the scheme. However, for market-linked return NPS schemes, no such solvency ratio is mandated.