NEW DELHI: Union finance minister Nirmala Sitharaman on Wednesday said the old-age financial security scheme, National Pension System (NPS) is a “very attractive proposition” for private sector employees as their assets have grown at the compound annual growth rate of 43% as compared to 27% for government employees.
Sitharaman said the NPS was an easily accessible, low-cost, tax-efficient, flexible and portable retirement scheme. NPS in the last 10 years has grown at the rate of 37% CAGR with 18.6 million subscribers and over ₹13 lakh crore in assets under management, she said.
Launched in 2004, NPS was initially for central and state government employees. Later in 2020, it was opened up for the private sector.
The minister was speaking at an event to launch NPS Vatsalya, an announcement she made in her budget speech on July 23, 2024.
NPS Vatsalya is a pension scheme for children below the age of 18 years with a minimum annual contribution of ₹1,000. After 18 years of age, the person may convert it into a regular NPS account. The beneficiary will get pension benefits based on his or her accumulated corpus after 60 years of age.
Speaking about the scheme, she said it will help in saving for the pension benefits in advance, about 15-20 years before one gets a job. “The NPS scheme generated competitive returns since its inception,” she said.
“For the non-government sector, it is absolutely stunning number,” she said while taling about returns on investments. “Of course, the markets have been very good, but the number is stunning,” she added. For the non-government sector since 2020, permitted asset classes have delivered returns of 14% (CAGR) for equity, 9.1% for corporate debt and 8.8% for government securities.
If one-third of your portfolio is invested in equity, one-third in corporate debt and one-third in government securities, you may be getting somewhere between 10.5% and 10.6% returns. “So, that is the kind of returns you get under NPS. And this is NPS vatsalya,” she added.
Referring to the recently launched Unified Pension Scheme (UPS) for the central government employees effective from April 1, 2025, Sitharaman said it has the best elements of Old Pension Scheme (OPS) and NPS. It provides an assured pension after retirement, and the government employees will receive a guaranteed pension amounting to 50% of the average basic pay drawn in the last 12 months before retirement.
Additionally, the UPS scheme includes inflation indexation based on all India consumer price index for industrial workers, she said. The state governments also have an option to adopt UPS as it takes care of both — the government employees’ interest as well as the taxpayers’ interest so that there is no over-burdening the future generations of a heavy pension bill, she added.