With the enactment of the Pension Fund Regulatory and Development Authority (PFRDA) Bill, the pension regulator is now planning to make the National Pension System (NPS) more attractive with tax benefits that would help expand its coverage.

A major drawback of the NPS is that it is under the exempt-exempt-tax (EET) system at present as against other retirement schemes under the Employees' Provident Fund Organisation and insurance schemes that are tax exempt at all three stages — contribution, interest income and withdrawal.

But the PFRDA is hoping that the scheme will now be given a level playing field vis-a-vis other similar products such as insurance funds and the provident fund and be fully exempt from tax.

“We are hopeful that our long standing demand for E-E-E (exempt-exempt-exempt) tax treatment will be addressed in the Union Budget 2015-16 as it will make the scheme more attractive and benefit subscribers,” Hemant Contractor, chairman, PFRDA had said recently.

But for investors looking to save up a retirement corpus, the NPS can be a very good long investment bet. More so with stock markets on a bear run, the scheme also allows those looking for a higher return to invest a part of their portfolio in equities.

Returns on the NPS have been in the range of 8 per cent to 10.5 per cent (CAGR basis) by March 2014 (see chart). “Just about 8 per cent of our corpus from the NPS for government servants is invested in equities while about 15 per cent of the corpus from NPS for private citizens is invested in equities,” said RV Verma, whole time member PFRDA.

The NPS has a number of variants for different segments of the population. Different pension schemes include NPS for government servants, NPS for citizens of India (where subscriptions are voluntary), NPS for corporates (which is facilitated by a company for its employees) and NPS Lite or Swavalamban that is for low income group subscribers.

But on a whole, the schemes work on the same basis – anyone between the age of 18 to 60 years can apply for pension account. Each subscriber gets a Permanent Retirement Account Number based on which they can make contributions and track their investments. Investments are broadly made in three categories of government securities, corporate bonds and equities, but the portfolio and choices allowed vary from scheme to scheme.