Tweaked for flexibility, NPS awaits tax clarity

This funded pension scheme now offers access to low-cost fund management with its option of staggered withdrawals of what was once a lump-sum. Good. Let's keep its taxation benign

The latest tweaks to India's National Pension System (NPS) improve an already excellent retirement saving scheme. The government could consider two additional improvements. One, remove the age limits respectively for entering the scheme and for staying invested. Two, remove ambiguity on the taxability of the funds that remain in the NPS after the mandatory lump-sum to buy an annuity is taken out.

The government introduced the NPS as a proactive measure to spare itself a pension burden that it would find hard to bear once the population has aged, reducing the proportion of those who work and pay taxes. Paying the pensions of past employees from the taxes paid by current earners was clearly not sustainable. Under the NPS, pension is sought to be paid out of a saving corpus accumulated over the employee's work life, with both the employer and employee contributing to it.