Corporate Adoption Of NPS Remains Low: Is NPS No Longer As Tax-Efficient?

The National Pension System (NPS) was launched initially only for the central government employees, with the option for the state to adopt it. Since January 2004, NPS replaced the old pension scheme (OPS), making it mandatory for all new central government employees. In 2011, NPS was extended to corporate sector employees. In contrast to the mandatory nature of the scheme for government employees, it is optional for corporate employers to offer it to their employees, which is probably one of the reasons for its lower adoption since 2011. The government has extended the tax benefit as well to the employers’ contribution to improve NPS penetration among corporate employees; however, the adoption remains low compared to the all-citizens model where in which NPS investment is optional.  

According to the data, corporate model subscribers grew around 18 per cent year-over-year from 20.67 lakh as of July 27, 2024, to 24.36 lakh as of July 27, 2025. Compared to this government model, subscribers grew around 8 per cent, and all-citizen model subscribers rose by 19 per cent.

So, why is the growth in corporate model subscribers low? Is it something to do with the employees or the employers? Let’s understand the corporate model, how it works, and the possible reasons behind its slow growth in the corporate sector.

What Is The NPS Corporate Model, And Who Is Eligible To Open An Account Under This Model?

Under the NPS corporate model, an employer (other than government) offers the NPS option in which both employee and employer can decide to contribute. All other conditions about the scheme remain the same. Anyone between the age of 18 to 70 years is eligible to open an NPS account. The same eligibility criteria are for the corporate subscribers.

Is It Mandatory For Employers To Contribute To The NPS Corpus Under The Corporate Model?

[http://]Kurian Jose, CEO, Tata Pension Management, clarifies, “No, employer contribution is not mandatory under the corporate model.”

Not only is it an optional scheme for employers to offer, but they don’t always have to match the same contribution as the employees.

Jose says, “When (corporate) employers do contribute, it can be structured as:

• A matching contribution (for example: 5 per cent of salary from both employer and employee)

• A fixed employer-only contribution

• Or voluntary employee-only contributions, facilitated by the employer.”

It means that it could be both (employee and employer) or either one of them, to contribute to the NPS under the corporate model. This is why, in many cases, where employers do not contribute, employees do not opt for NPS under the corporate model and instead join it under the all-citizen model.

Is NPS still Tax-efficient?

While experts suggest that NPS is a retirement planning tool to save money for the long term and it should not be considered a tax-saving instrument. But the instant gratification of tax-saving for that year is something that lures people. People have invested in NPS, focusing on tax savings rather than long-term savings.

• Old tax regime: The tax benefits are available on contributions from both employee and employer.

Employee contribution: Section 80CCD (1): up to Rs 1.5 lakh tax benefits

Section 80CCD (1B): an additional Rs 50,000

Employer contribution: Section 80CCD (2): up to 10 per cent of the

salary (basic and DA)

• New tax regime: Under the new regime, tax benefits are available only on the employers’ contribution.

Employer contribution: Section 80CCD (2): up to 14 per cent of the

salary (basic and DA)

Employer contribution is subject to the Rs 7.5 lakh limit across all employer retirement benefits, including employees’ provident fund (EPF), superannuation, etc.

Jose says, “So, yes, NPS is still tax-efficient, but the appeal varies depending on the tax regime and income level of the employee.”

Is Annual Cap Of Rs 7.5 Lakh A Constraint For Corporate Employees Considering NPS?

“Yes, the Rs 7.5 lakh annual cap on employer contributions to NPS, EPF, and Superannuation Fund (SAF) combined can be a constraint for high-income earners, especially in corporations with generous EPF/SAF structures. Contributions above this threshold are taxable in the hands of the employee”, says Jose.

So, the Rs 7.5 lakh limit is a constraint for high-income individuals opting for NPS. At the same time, no tax benefits on employees’ contributions is a deterrent for many low-income individuals from opting for NPS in the new tax regime, especially if their employer does not contribute to it.

Why Does Corporate Adoption Of NPS Remain Low?

Rajesh Khandagale, SVP - NPS, KFin Technologies, points out the low awareness for lower adoption. He says, it is “because of awareness of the option of NPS. PFRDA and NPS Trust have undertaken various industry-level meetings to increase the awareness of NPS.”

Jose highlights the employers’ side by saying , “Lack of awareness and understanding among employers and HR decision-makers and operational inertia or complexity in onboarding a new retirement benefit system.”

For employees’ lackluster adoption, he says that employees prefer receiving larger cash in hand, especially at an earlier age, than getting money locked into such retirement products. Further, their preference for familiar products like EPF and gratuity, and in some cases, a lack of flexibility in NPS, where 40 per cent corpus must be used to buy annuity, are the primary reasons for lower adoption of NPS among the corporate sector.

The administrative issues are real in many cases. Where EPF is almost considered mandatory, it actually is not. Both EPF and NPS are optional if an employee's salary is more than Rs 15,000, but companies do not give the option of NPS to their employees at the time of joining.

Joining NPS through the corporate model will not be useful if one employer offers it, and after switching jobs, the new employer does not. In such a case, an employee has to keep converting the NPS account from corporate to all-citizens or vice versa.

However, with more awareness and providing an easy mechanism to onboard employees on NPS, the corporate model can grow at a much faster rate.