Need for optional conversion of EPF to NPS

epf, nps, new pension schemeWe welcome the introduction of the Pension Fund Regulatory & Development Authority (PFRDA) Bill to give statutory powers to an already well-functioning interim regulator. Three issues deserve the attention of the standing committee on finance , to which the Bill has been referred. One, subscribers to the Employees Provident Fund Organization (EPFO ) must have the freedom to voluntarily move to the New Pension System (NPS), so that their mandated saving and their employers' contribution would go to their NPS account rather than to the EPFO.

During the current phase of India's high growth, riding on a demographic dividend that comes with an expiry date, the workers who build this growth should be able to establish varied claims to the economy's production base, so as to maximise their future income and minimise risk. The NPS' organisational structure with electronic accounts portable across jobs and geography, maintained by a single record keeper at a low cost, asset management flexibility as to both assets and managers, ultra-low asset management costs and regulatory oversight make the NPS far superior to the EPFO.

Those who do not appreciate this must have the option to stay with the EPFO, its dodgy accounting and meager returns. The second issue is taxation, which must be on par with that of other long term savings. If the government does not have the guts to apply Exempt-Exempt-Taxed — which describes the tax treatment of savings at the stages of contribution, accumulation and withdrawal — to other saving products, there is no reason to penalize NPS alone with a flash of bravado. The third matter is distribution.

The current model leaves no money on the table for those who do distribution , so there are virtually no distributors either. Till the NPS enrolls 5% of the workforce, the government can pay for distribution while the NPS asset managers can pick up the tab afterwards. The main Opposition party, BJP, supported the introduction of the Bill. This is welcome. The same good sense should be extended to other reform bills, including the ones on a unified goods and services tax in the country.

Source: The Economic Times

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