In the past two years, the NPS (National Pension Scheme) which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) has witnessed several changes which makes it consumer friendly. In its most recent move, the PFRDA has notified a procedure, by which members in the EPFO (Employees Provident Fund Organisation) could transfer their investments to the NPS. The move was first mooted by the Finance Minister in his 2015 Budget, which is finally going to see the light of the day.
For those who were earlier looking to move to the NPS from the EPF, the opening existed, but was tax inefficient, if they were to carry forward their corpus. Clarifying this change, the PFRDA statement said: “The transferred recognised Provident Fund/Superannuation Fund will not be treated as contribution of the current year by employee/employer and accordingly the subscriber would not make Income Tax claim of contribution for this transferred amount."
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Shifting process
If you are an employee with the government or private sector, you need to first request the recognised provident or superannuation fund to issue a letter to your current employer mentioning that this amount was being transferred from the recognised fund to your NPS Tier I account. This should be recorded by the present employer or POP as the case may be, while transferring the sum.
When moving the money to the Tier 1 account, the nodal office has to mention the transfer from PF/superannuation fund in the remarks column while uploading. The upload has to be made as per request letter of the ex-employer. In case of private sector employees, the employees should request the recognised PF/superannuation fund to issue a letter to the present employer/PoP as the case may be mentioning that amount is being transferred from the PF/Superannuation fund to be credit in the NPS account of the employee/individual Tier-I account.
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Should you shift?
Given the choice of funds to put your money in the NPS, it does make for a better option going just by the convenience compared to the EPF. Further, with reducing interest rates, the EPF though guarantees interest rates on the corpus each year; the returns have been going down each passing year. Moreover, under the EPF, every member is the same; there is no way to allow them to choose an investment option that suits them. In contrast, the fund options and automatic allocation in case of the NPS have greater choice for members to stay invested in a fund of their choice.
On the flipside, the NPS is tax inefficient, because of the tax implication on the corpus at the time of the exit. At the time of withdrawal from the NPS, 60 per cent of the corpus is taxed, which is not the case with the EPF corpus, which is fully tax exempt. However, in the long run, changes in taxation are expected to bring parity to all retirement products, which make the case for NPS over the EPF. Anyone with 15 years or more left to contribute to the EPF could consider moving the NPS as long as they understand the risks associated when making this shift compared to the EPF. Sensing the need for equity exposure, even the EPF is slowly taking exposure into equities by investing a part of its incremental corpus in equities through exchange traded funds (ETFs).
