BackTech and new rules helped pensioners
A look at some of the major developments in the sphere of pensions in India in the year 2017
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Ease of operations, taxability and returns: these are the biggest concerns for users of retirement benefit products like the National Pension System and Employees’ Provident Fund, the two largest pension products in the country. The year 2017 saw some incremental changes in both these products.
“(This year) has seen the NPS evolve further with measures like partial withdrawal, extending the eligibility to join and a few administrative developments like online enrolment. EPF has not changed significantly but does continue to roll out administrative process updates, for example the ability to apply for withdrawals online and also allow more withdrawal of funds for housing," said Kulin Patel, head of retirement, South Asia, Willis Towers Watson.
We take a look at some important developments in the pension and retirement space in 2017.
The Union Budget 2017-18 had proposed that partial withdrawals of up to 25% of the contributions will not be taxed. The explanatory memorandum for the Finance Bill 2017 stated that for employee subscribers of NPS, a partial withdrawal of up to 25% of the corpus would be exempt from tax, which is in addition to the exemption to 40% of the corpus at the time of withdrawal. However, this benefit will come into effect from April 2018.
The Pension Fund Regulatory and Development Authority (PFRDA) has revised commissions for points of presence (PoPs), which are entities such as banks that sell the National Pension System (NPS) scheme and earn commission from the investments you make. In a circular dated 27 October 2017, PFRDA announced a new charge structure for the private sector NPS (the NPS for citizens and corporate entities). Though the hike is marginal and will not impact your investments significantly, it has just made the charge structure a little more difficult to remember. While the charges for initial subscriber registration and charges for subsequent contributions through e-NPS have gone up, the regulator has introduced a new persistency charge. An NPS account is persistent if it receives at least ₹ 1,000 each year. For this, the PoP will get a persistency reward of ₹ 0 every year.
PFRDA has increased the entry age limit for NPS to 65 years, from the earlier limit of 60 years. This is applicable to the NPS for private sector, which is the All Citizen Model and Corporate Model of NPS. A person joining the NPS after 60 years of age will be allowed to contribute to her NPS account till the age of 70.
For the subscribers who join after the age of 60, normal exit has been allowed after they complete 3 years in NPS. In this exit too, the subscriber will have to annuitize 40% of the corpus. Exiting before completing 3 years will be considered pre-mature exit and 80% of the corpus will have to be annuitized.
For all salaried employees covered under EPF, transfers from an old account to a new one, partial and final withdrawals and checking the EPF balance is something that they want to be easy and not mired by layers of paperwork. Over the past few years, the Employees’ Provident Fund Organisation has been working on several digital initiatives, which have made handling the EPF account easier for individuals, without having to depend on their company’s human resource department.
The year 2017 saw the roll-out of online processes of applying for transfers, and partial and final withdrawals. This has eliminated the need to fill paper-based forms. However, this facility is open only to subscribers who have seeded their EPF account with their Aadhaar number. The EPFO has also put its services, including one to check their passbook, on the Government of India’s Umang App.
EPFO had decided to invest in the stock markets in 2015 but till now subscribers had not reaped the benefits of this move because, though EPFO had put some money in the stock markets it had not devised a methodology to account for the returns from these investments.
In 2017, the EPFO announced it would credit the exchange traded fund (ETF) units in the provident fund account of its subscribers.
This means, the equity component of your EPF money will get unitized and you will not only be able to track your EPF investments in equities but also realise the gains from the stock market at the time of withdrawal.
It needs to be seen when this comes into effect. The EPFO plans to implement it in the financial year 2018-19.
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