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EPF vs NPS

EPF and NPS



NPS Even as the EPF struggles with the possibility of low returns and accounting problems, the New Pension System (NPS) is churning out attractive double-digit returns for investors.Government workers covered by the NPS have earned over 11% compounded returns in the past five years and over 14% in the past three years. Aggressive investors in the general category have been the biggest gainers.The average equity plan has clocked over 14% in the past five years and nearly 19% in the past three years. In the past six months alone, they have shot up 25%.


Should you shift your retirement corpus from the EPF to the more lucrative NPS? Experts are divided whether this is a good idea.While market-linked returns, transparency and flexibility are big draws, the compulsory annuity and the tax on maturity are dampers. A legislation to amend the Employees' Provident Fund & Miscellaneous Provisions Act has already been framed and is lying with the Law Ministry. The amendment allows EPF subscribers to make a one-time switch to the NPS. Once he shifts to the NPS, the employee will have a one-time chance to return to the EPF fold. It's a progressive legislation which offers a lot of flexibility to the subscriber. However, on rejoining the EPF, the subscriber will not have the option to go back to the NPS.

On its part, the government is doing every thing to make the NPS more attractive to investors.Last year, it announced an additional tax benefit on NPS investments. This year it sweetened the deal by making 40% of the NPS corpus tax-free on maturity.

Even so, the NPS is still not as tax friendly as the fully exempt EPF. On retirement, at least 40% of the corpus is compulsorily put in an annuity to earn a taxable pension. Pension Fund Regulatory Development Authority Chairman Hemant Contractor said that unless there was tax parity, the proposal will not find takers. "Why would anybody want to shift his money from the fully tax-free EPF to the NPS where only 40% of the corpus will escape tax?


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