NPS corpus may rise 28% to Rs 15 trillion in FY25: Regulator

With the government-sector enrolment saturated, PFRDA is encouraging private corporates to enroll their staff under NPS. About 0.87 million new private sector subscribers joined in FY24.

The assets under management (AUM) under the National Pension System (NPS) may rise by a steep 28% on year to Rs 15 trillion by end of 2024-25, aided by fresh enrolment of private subscribers and a new “life cycle scheme,” Pension Fund and Regulatory Development Authority chairman Deepak Mohanty said on Friday.

This shows even amid the clamour for a return to the old (defined-benefit) pension scheme, and several state governments re-introducing unfunded pension schemes for their staff, with potentially huge costs to the exchequer, the NPS continues to gain traction.

With the government-sector enrolment saturated, PFRDA is encouraging private corporates to enroll their staff under NPS. About 0.87 million new private sector subscribers joined in FY24.

According to Mohanty, the new life cycle scheme that will automatically allow people till 45 years of age to invest 50% of their corpus in equity, will be launched by August-September. After the cut-off age, equity exposure will taper off gradually.

An auto-choice lifecycle fund would offer an easy option for those private subscribers who do not have the required knowledge to manage their NPS investment. Mohanty said he would suggest to the government allow the scheme for its staff as well.

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The proposed scheme is an improvement over the extant LC50 – Moderate Life Cycle Fund which provides a cap of 50% of the total assets for equity investment. The exposure in equity starts with 50% till 35 years of age and gradually reduces as per the age of the subscriber. This extant scheme is also available to the government staff.

Subject to market conditions remain as it is now, Mohanty said the cumulative NPS AUM including Atal Pension Yojana (APY) will likely reach Rs 15 trillion by March 31, 2025.

“We expect to add 13 million new APY subscribers in FY25 and as many as 1.1 million private sector subscribers,” Mohanty said, stressing that PFRDA is making efforts to expand private subscribers base as government sector subscribers are saturated.

Despite saturation in enrollment of government employees, the subscriber base under NPS rose by 16% on year to 73.6 million in FY24. As on June 15 this year, the NPS subscriber base has reached 75 million, reflecting an addition of 1.4 million so far in FY25.

The average returns generated by pension funds under NPS have been handsome as well. Equities have given a return of 34.8% in one year and 14% since inception. The central government scheme and the state government schemes have given a return of around 11.11% in one year and around 9.2-9.5% since inception.

According to the extant NPS norms, a maximum of 60% of the accumulated NPS corpus from contributions during a person’s working years is allowed to be withdrawn tax-free at the time of retirement. The subscriber has to invest a minimum of 40% of the corpus in annuities for a regular pension. However, it is not a guaranteed pension as returns are linked to markets. Annuities could fetch 5% to 7% return per annum depending on the choices made by the subscriber with single-life annuities giving higher returns as the corpus is not returned by the fund manager after the death of the pensioner.

Given that the NPS system is giving good returns, the NPS subscribers can stay invested in the NPS till they turn 75 years under the Systematic Withdrawal Plan (SWP) and draw monthly or quarterly or annual basis depending on their requirements.