PFRDA Pension Fund Regulator of India through its circular dated August 03, 2022 has restricted payment of contributions using credit cards to its National Pension System (NPS) Tier-II account. It has advised Points of Presence from accepting payments using credit cards. The decision of PFRDA Pension Fund Regulator of India to stop subscribers from using credit cards for making contributions to Tier-II accounts fills an important gap in the NPS architecture.
NPS Tier-II accounts, unlike NPS Tier-I accounts, are investment accounts with no locking period or restriction as to form of withdrawal, i.e., a subscriber can withdraw the whole amount invested in a Tier-II account at any time without restriction of time, amount or purchase of annuity. Further, the amount withdrawn goes in the bank account of the subscriber. This meant that subscribers having Tier-II accounts could have used credit cards to make contributions to their accounts only to immediately withdraw the contributions in their bank accounts. Resultantly, this lacunae allowed subscribers to access their credit balance in their credit cards as cash without paying charges of cash withdrawals to the banks. Further, subscribers using the e-NPS channel could have used credit cards of other individuals to exploit this gap as the channel does not restrict investments only from the bank account of subscribers, unlike stock markets where contributions can only be made from the own bank account of the demat account holder.
While PFRDA has now addressed this gap in NPS, we would like to know your views on whether investments using credit cards should be allowed at all. Readers can send their view or comments to Regstreet Law Advisors at info@regstreetlaw.com