The National Pension System faces significant structural barriers that are limiting its growth potential, according to Axis Pension Fund CEO Sumit Shukla. As reported by PTI, the compulsory 20 per cent annuity requirement represents a major obstacle that could be addressed through regulatory changes. Shukla emphasized that customers should be allowed to choose between annuity products and the new Retirement Income System (RIS) framework for post-retirement income planning.
The absence of key tax incentives under the new tax regime has significantly impacted NPS adoption, according to Shukla's analysis. According to PTI reports, the additional ₹50,000 tax deduction that was available under the old tax regime should be restored to the new regime to support retail traction. Shukla noted that when this deduction existed, there was strong market response, but after the shift to the new tax regime, traction reduced substantially as most investors moved to the new regime. However, salaried individuals can still reduce their tax liability under the new tax regime for FY 2025-26 through employer contributions to NPS and EPF, a standard deduction of ₹75,000, and interest on home loans for let-out properties. Exempt perquisites and certain official allowances also offer tax benefits.
Industry experts believe that implementing these reforms could have a transformative impact on NPS participation rates. As reported by PTI, Shukla stated that growth could become multifold within two to three years if reforms such as annuity flexibility and tax parity are implemented. The proposed changes include seamless portability, automatic continuation of pension contributions when employees switch jobs, and default participation models with opt-out options. The Pension Fund Regulatory and Development Authority (PFRDA) has introduced the Retirement Income Scheme (RIS) under NPS, allowing retirees to receive systematic payouts from the 80% withdrawable corpus until age 85 while keeping funds invested, though payouts remain market-linked and tax treatment remains unclear.
The CEO advocated for integrating NPS onboarding into the employment process to simplify participation. According to PTI reports, Shukla suggested that when employees join new companies, HR departments should request PRAN numbers just as they currently collect EPFO details. He proposed that if employees already have a PRAN number, contributions should start automatically, while seamless onboarding should be available for those without existing PRAN numbers without requiring additional KYC documentation.
