With the UPS (Unified Pension System) which is soon to become a reality in the next financial year, several government employees may decide to opt out of the National Pension System (NPS) for UPS.
It is important to note that for the time being, UPS will be open only to central government employees, which means that salaried private sector employees subscribing to NPS will not be allowed to opt out of NPS for UPS.
For those who don’t know, NPS subscribers can maintain two accounts: NPS Tier I and Tier II. Level I is the mandatory account, the Tier II account is optional. Being optional, the Tier II account provides more flexibility to investors in terms of withdrawal. So, unlike the Tier I account, you can withdraw funds from the Tier II account at any time. Sounds great? Sure!
So, it’s something similar to a Mutual fund where you can invest and redeem at your convenience. Here we analyse the returns generated by investing equity in NPS Tier II accounts over the last five years.
(Source: npstrust.org.in; data as of 6 September 2024)
There are 10 pension fund managers, but some of them have only recently joined, so data for the past five years is only available for seven of them. As can be seen from the table above, most pension fund managers have achieved returns on their equity investments over five years of between 19 and 21 percent per year.
The lowest return (19.25 per cent) was recorded by SBI pension fund, while the highest return (20.87 per cent) was recorded by ICICI pension fund as of September 6, 2024.
Key things to know about NPS:
I. NPS does not offer fixed returns to subscribers. Returns are linked to the market.
II. When you choose to retire, 60 percent of it is tax-exempt.
III. Tier II account provides flexibility in terms of withdrawal to subscribers without any exit charge.
IV. You may open a Level II account only if you have a Level I account.
It is worth mentioning that there are four asset classes that NPS pension fund managers can invest in: equity, corporate debt, government bonds and alternative mutual funds. The above table shares details related to investment in only one of these asset classes, i.e. equity.
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