"PPF, having a life cycle of 15 years, is under an EEE (exempt-exempt-exempt) tax regime and is not taxed at any point, whereas the New Pension Scheme, being a 30-35 years instrument, is taxed at the exit point (withdrawal)," said PFRDA Chairman Dhirendra Swarup here at the 8th Annual IIEF Pension Policy Conference and Roundtable 2008.

The subscribers of New Pension Scheme, about 8,50,000 now, are at a disadvantage, given that the scheme is mandatory, whereas PPF is a voluntary scheme, said Swarup. 

Further, the contribution of employees as well as employers is included under the overall limit of Rs 1,00,000 exemption available to individuals in a year under Section 80C of the Income Tax Act.

"The employer's (government) contribution should be over and above the Rs 1,00,000 limit under 80C," said Swarup. He said the tax treatment merits a review to take care of the distortions across financial instruments and giving right fiscal incentives for the development of the pension sector, he added.

Since April 1, the three pension fund managers appointed by the regulator have started investing the pension corpus in various market instruments, including equities, according to the non-government provident fund rules.

About Rs 1,200 crore (Rs 12 billion) accumulated by the central government has been transferred to the pension fund managers sponsored by State Bank of India [Get Quote], UTI Asset Management Company and LIC [Get Quote].

The 19 state governments, which have accumulated about Rs 2,000 crore (Rs 20 billion) of pension corpus, are in talks with fund managers for investing the money.

National Securities Depository (NSDL) is the central record-keeping agency for the New Pension Scheme, while Bank of India has been appointed as the trustee bank.