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In this post, I discuss why it is a terrible idea to shift your EPF corpus to the NPS (National Pension Scheme). In a circular dated 6th March 2017, the Pension Fund Regulatory and Development Authority (PDRDA) announced a road map for provident fund and superannuation plan subscribers to shift to the NPS.
The shift will be one-time, tax-free and will not be counted as income. Hence this cannot be used for tax deduction. Here is why I think you should stay away from this opportunity.
There has been a lot of confusion regarding the exit and withdrawals rules of the National Pension System (NPS). I apologise if I have contributed to it. In this post, I shall attempt to get rid of my own confusion and clarify my understanding.
Until today I have incorrectly believed that 40% of the NPS corpus can be withdrawn tax-free, either upon retirement or before and thought that the NPS regulator PFRDA would announce a revision to its PFRDA (Exits and Withdrawals under NPS) Regulations.
NPS Tier 1 and Tier 2 plans have a corporate scheme (C) which has a mandate to invest in bonds issued by public sector undertakings (PSUs), public financial institutions (PFIs), infrastructure bonds, private corporate bonds and bank deposits.
This is like a short-term diversified debt fund with about 50% of a banking and PSU fund and 50% of a corporate bond fund. However, the credit quality is typically much higher.
A look at how NPS Tier 1 Equity schemes (E) have performed. With the increase in popularity of NPS because of the clever introduction of additional tax saving benefits - which one should avoid, more and more people are searching for "best NPS pension fund manager".
The reality is that there is nothing much to choose between the seven pension fund managers - ICICI, UTI, HDFC, Kotak, Reliance, SBI, LIC. Value Research has started maintaining returns of NPS Schemes and quick will validate the above comment.
My mother retired 13 years ago and started receiving a pension that was indexed to inflation. Not only did it increase twice a year, thanks to DA hikes, it also increased as a result of pay commissions. The average year on year growth of her pension is close to 13%. This is an astounding number - not for her, but for the government who has to pay a similar pension to the lakhs of central and state government pensioners.
