Why MSME and Organization should focus on Corporate NPS

In today’s challenging market, a good salary is no longer sufficient to live a secured life. It demands more especially from the corporate employees. While large organizations have offered pension schemes long back, many Micro, Small, and Medium Enterprises (MSMEs) and mid-size organizations are yet to provide the similar benefits to their employees.

National Pension System (NPS), specially the Corporate NPS model, is the most underrated factor in an HR’s arsenal to build a loyal, happy and tax-efficient workforce in the organization.

Let’s understand why every MSME and Organization needs to focus toward Corporate NPS and how it helps both employees and the organization.

The Modern Workplace Challenges

In the recent years, the workplace has become more conscious in terms of financial stability. Losing a key resource or an employee because a large organization offered better financial security benefits can be overwhelming.

Corporate NPS is more than just another retirement plan, it gives financial stability to employees opting for it. It is a statement for employees that organization cares about their financial security. It acts like a powerful retention tool for MSMEs and Organization to retain their workforce.

What is Corporate NPS?

Before diving into Why Corporate NPS is required, we need to understand What is Corporate NPS. The National Pension System (NPS) is a long-term voluntary retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

The Corporate NPS model is a customized version where the employer and the employee both contribute to the pension account. Unlike traditional pension systems, NPS is market-linked that has potential to beat inflation and generate significant wealth over decades.

The Financial Advantage of Corporate NPS

One of the biggest reasons to opt for Corporate NPS is the tax efficiency it offers to employees. Here’s an understanding on the benefits of Corporate NPS:

For the Employer

• Any contribution made by the organization toward the employee’s NPS account (up to 10% of the basic salary + dearness allowance) can be claimed as a business expense, which reduces the company’s taxable income.

For the Employees

• The employer’s contribution to the NPS is tax-deductible for the employee under Section 80CCD (2) of the Income Tax Act. This is over and above the standard ₹1.5 lakh limit of Section 80C.

Key Insight: This can be very beneficial for an employee falling under 30% tax bracket in annual savings. It is an effective way of offering net-pay increase without increasing the company’s CTC.

Retaining Top Talents of the Organization

The biggest challenge is often competing with the top organization to retain the talent for MSMEs. Top organization offers various benefits and perks such as health insurance and retirement bonuses. Corporate NPS will help MSMEs and mid-size organizations to retain the top talents of the organization

By implementing NPS for Corporate Employees, MSMEs and Organizations signal professionalism and long-term thinking that offers structured retirement plan for the employees that builds a Corporate Brand which suggests the company is stable and values its workforce.

The PRAN Advantage

Traditional companies managed pensions that involved paperwork which was quite frustrating when an employee moved. NPS solves this Permanent Retirement Account Number (PRAN), which is a unique identifier to an individual.

For instance, if an employee leaves the company to join another, or even if he decides to become a freelance later, their NPS Account would stay with them permanently.

Low Costs, High Returns with Corporate NPS

MSMEs often avoid benefit schemes because of the Administrative Overheads as they don’t want to hire a full-time person. But guess what? NPS is designed to be a low-cost retirement plan for corporate employees. The fund management charges are very low which helps an employer to manage the administrative burden.

Flexibility in Investment

Not all employees might have the same risk appetite, as a 22-year-old employee might want to invest in equity for higher growth, while a 50-year-old employee might prefer the safety of government bonds.

Corporate NPS offers employees to choose their own investment option (Active Choice or Auto Choice), that shifts money from risky assets to safer ones. This kind of customization is what makes Corporate NPS slightly better than other retirement plans.

How MSMEs or Mid-size Organization can get started?

Setting up a Corporate NPS is a simple process:

• Register as a POP (Point of Presence) or simply partner with an existing POP
• Employees can open their accounts online using their Aadhaar or PAN
• Decide how much the company will contribute (e.g., 10% of Basic)
• The NPS contribution is deducted and remitted monthly

The Impact on the Workforce

Financial stress could be one of the leading causes of low productivity. By encouraging Corporate NPS, MSMEs and Organization are essentially supporting employees in financial security that helps them to build a pension wealth that will support them in their years.

The Final Thoughts

Corporate NPS is not just a benefit for employee; it is a strategic advantage for MSMEs or Organization. For MSMEs, it is an important tool for retaining talent likewise for large organizations, it is a way to optimize tax and provide social security.

Organizations that adopt NPS today will be the ones that have the most stable and the satisfied workforces tomorrow.

Frequently Asked Questions (FAQs)

Q1: Is it mandatory for an MSME to provide NPS to its employees?

No, the National Pension System (NPS) is voluntary for the private sector. However, once an organization decides to implement it, they can choose to make it a part of the standard CTC for all new joiners.

Q2: What is the maximum age to join Corporate NPS?

Any Indian citizen between the ages of 18 and 70 can join the NPS.

Q3: Does the employer have to contribute a fixed amount every month?

The percentage of contribution is usually decided by the corporate policy. Most organizations opt for 10% of the Basic + DA to maximize tax benefits for the employees.

Q4: What happens to the NPS account if the employee leaves the company?

The account (PRAN) is fully portable. The employee can continue the account in their personal capacity or shift it to their new employer if the new company also offers Corporate NPS.