Retirals and Health care - Emerging Trends in HR - Part VI

In continuation to my previous post on emerging HR trends, to conclude this series, I would like to touch upon on New Pension Scheme and health benefits.

NPS- New Pension Scheme

On May 1, 2009, the Pension Fund and Regulatory Development Authority (PFRDA) threw open the New Pension Scheme (NPS) to all Indian citizens. Till then, this pension scheme was available only to the central and state government employees. NPS is a defined contribution pension scheme open to any Indian citizen between the age of 18 and 55.

In a defined contribution scheme, the individual invests a certain amount in a pension scheme till he retires. At retirement, he is allowed to either withdraw the money that has accumulated or buy an immediate annuity from an insurance company to generate a regular income, or do both. The option he exercises depends on the way the pension scheme is structured. Buying an immediate annuity assures a regular payment from the insurance company. This payment can be monthly, once every three months, once every six months or once every year.

The money you invest in NPS will be managed by professional fund managers. Currently, you have the choice of picking up one of the following six fund managers: ICICI Prudential Pension Management, IDFC Pension Fund Management, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Funds, and UTI Retirement Solutions. It is important to remember that at the point of filling up the form, the choice of one of these six pension fund mangers needs to be indicated. The application will not be accepted if this choice is not made.

The NPS offers two accounts: tier I and tier II. Currently only tier I account is available. This is a non-withdrawal account and investments in this keep accumulating till you turn 60. Withdrawal is allowed only in case of death, critical illness or if you are building or buying your first house. In case of death the nominee can get 100% of NPS wealth in a lump sum. He can however continue with the NPS in case he wishes to. Tier II account, on the other hand, will be a voluntary savings account which will allow you to withdraw money as and when you want to.

Under Section 80CCD of the Income Tax Act investments of up to Rs 1 lakh in the NPS can be claimed as tax deductions. Readers should remember that this Rs 1 lakh limit is not over and above the Rs 1 lakh limit available under Section 80C. In fact, the combined limit of investments made under Section 80C, 80CCD and section 80CCC (for investments made into pension plans of insurance companies) is Rs 1 lakh.

NPS by default sets the retirement age at 60. Once you attain that age, you can use the money that has accumulated to generate a regular pension for yourself. In order to do this, you have to compulsorily buy immediate annuity from a life insurance company with 40% of the money that has accumulated. As explained at the beginning, buying an immediate annuity will assure a regular payment for you.

Since a minimum of 40% needs to be used to buy an immediate annuity, a maximum of 60% of the money accumulated can be withdrawn. However, unlike other tax-saving instruments like Public Provident Fund (PPF) and Employees' Provident Fund (EPF), wherein the amount at maturity is tax-free, in case of NPS this amount is taxable. This is one negative feature of NPS. However, the PFRDA, which is running the NPS, has approached the government to give NPS a tax treatment similar to that for PPF and EPF. Currently, the only way not to pay tax is to buy immediate annuities using the entire amount at maturity, which is not bad because you were anyway accumulating the corpus to generate a pension.

Health coverage

The practice of providing medical cover to employees is quite prevalent amongst Indian employers.

Lately we have observed a hike in premium costs owing to sophisticated medical technologies and employees seeking excessive care and malpractices like over-recommendation of services.

Rising premium costs, however, have not reduced the importance of health care cover as an employment value differentiator. Indian companies continue to use it as a part of their hiring and retention strategy and to minimize losses arising out of employee health issues, however corporate strive to strike a balance between increasing premium costs and talent management strategies

To achieve this objective it is crucial that companies constantly review and customise healthcare plans. It is vital that employers design appropriate health care plans, employ efficient ways to manage them and ensure that employees understand their value. Corporate are constantly devising different strategies to control health care costs and companies are stressing on employee education around health care.

Some companies even cover post retirement medical expenditure. Post retirement medical benefit is mainly provided by companies in the public sector, while a very small proportion of private sector companies provide such long term benefits.
I hope this series helped you get an insight on emerging HR trends!


  1. Anonymous8:29:00 AM

    I didn't read all parts of this series, but whatever I read was very useful,informative and comprehensive.

  2. I want to know whether there were any changes made in new pension scheme on health care.