Not only are the tax structures different, entry and exit rules for the products differ as well.
A public provident fund has EEE (exempt-exempt-exempt) status, and an individual can invest any mount between Rs 500 and Rs 1.5 lakh into it. The employee's provident fund (EPF) which also enjoys the EEE status, constitutes up to 12 percent of an individual's monthly salary. However, both National Pension Scheme (NPS) are EET, meaning the end amount received is taxable.
Although the two NPSs are quite straightforward, there is a crying need to bring a uniform authority to regulate them as an umbrella body and look at all pension products, offered by banks and insurance houses. Currently, the system of entry, exit and the withdrawal process is different across products offered by Pension Fund Regulatory and Development Authority (PFRDA), Employee Provident Fund Organisation (EPFO), banks and insurance companies that it often leads to confusion among customers.
Take for example Praveen Sinha, a 31-year old technology professional in Mumbai. He was sold an insurance policy by an agent of a large life insurance company, instead of an NPS product. It was only when he got his renewal receipt did he realise that he was sold an entirely different product and could no longer simply withdraw the money without paying certain charges.
The Insurance Regulatory and Development Authority of India (IRDAI) and PFRDA are in talks with the Finance Ministry over the regulation of pension products. PFRDA has sought that all pension products sold by insurance companies as well as mutual funds should be regulated by them. The finance ministry is yet to take a decision on the matter.
Meanwhile, there are differences in annuitisation of policies as well. For instance, an insurance company’s pension product mandates that the annuity product at end of policy term can only be brought from the same insurance company. Meanwhile, NPS rules state that they can be bought from multiple life insurance companies.
In January 2012, IRDAI had said pension products would have to guarantee an assured benefit in the form of a non-zero rate of return, which would need to be disclosed upfront. Further, it said annuity had to be bought from the same company. These regulations had led to slower approvals of pension products. Initially, there was a dearth of pension products in the market. However, the gap was filled after some private life insurers launched pension products.
Now, insurers have once again started to launch products but there is a clear disadvantage when compared to others. Added to it is the fact that on one hand, some customers are not sure how to build their retirement corpus, while on the other distributors have tried to push products that help them earn better commissions.
At a time, when most of us outlive our retirement age by 15-20 years and would want to maintain a certain lifestyle even after quitting a job, it is crucial that some uniformity is brought either in the products or one regulator oversees them. The sooner it is done, the better.
