Plan to open NPS to 65+ gets split views

The Pension Fund Regulatory and Development Authority (PFRDA) is contemplating hiking the maximum age of entry for the National Pension System (NPS) from 65 years to 70 years.

The Pension fund regulator is also thinking of allowing NPS subscribers who join after the age of 60 years to continue their NPS accounts till the age of 75. However, for others, the age of maturity will remain 70 years.

Financial planners are, however, divided over the benefits of people entering NPS at the fag end of their life, as they would have a limited time-frame to accumulate a decent corpus through this investment. Moreover, with 40 per cent of the total corpus mandatorily going towards buying annuities, their overall returns would be limited.

According to some experts, senior citizens would be better off investing their surplus in a mix of debt instruments, such as Pradhan Mantri Vaya Vandana Yojana, post office Senior Citizen Savings Scheme, fixed deposits, debentures, bonds and debt mutual funds.

Says Arnav Pandya, a certified financial planner: “It would have been positive if existing subscribers were given the option to contribute in NPS for a longer time. But the accumulation period is being increased for new subscribers. Senior citizens who can invest in NPS for around 15-20 years can look at subscribing in NPS but those who have a lesser time horizon should refrain from NPS.

“This is because under NPS, 40 per cent of the corpus needs to be converted into annuity, which reduces the rate of return that a person would earn on their corpus, as you are forced to go to an insurance company and buy annuities. Also, if you are a senior citizen, you will invest only in debt, which would limit the scope of appreciation as compared to when you invest in equities. You are better off on your own investing in a range of debt instruments that give you a higher rate of return.

“So, for older people starting NPS just because the investment age is raised would not be the right strategy, as you need to give time for the corpus to accumulate. Such investors can look at a mixture of debt mutual funds, debentures, bonds, special deposits of banks and financial institutions.”

But Supratim Bandyopadhyay, chairman, PFRDA, says around 15,000 people above the age of 60 joined the NPS since the entry age limit was raised from 60 to 65 three years ago.

According to the chief executive officer of a pension fund house, “Senior citizens can earn decent returns, avail tax benefits and protect their capital by investing in NPS.”

Sachin Shetty, a mutual fund and insurance distributor, said, “Life expectancy is rising and so are expenses. So far NPS has performed well. If a person is 60 years or more but is ready to hold money for the long term i.e. 10 years or more, then he should definitely invest in NPS to create a good corpus to meet rising expenses. However, since NPS is prone to market fluctuations, those with high investible surplus could diversify by investing a part of their surplus in Pradhan Mantri Vaya Vandana Yojana which is fetching over 7 per cent return.”