Budget 2020 Expectations: Will FM give NPS subscribers this new option to get pension during retirement?

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Updated: January 25, 2020 11:10:53 AM

Budget 2020 Expectations for NPS: It is expected that the Systematic Withdrawal Plan similar to that available in mutual fund schemes may be introduced in NPS in the Union Budget 2020.

NPS Budget 2020 Expectations, Budget 2020 Expectations for NPSIf implemented, under SWP, the NPS subscriber will have the option to decide how much to withdraw for meeting pension needs.

Union Budget 2020 Expectations for NPS: The subscribers of the National Pension System (NPS) may get a new option to receive the annuity or pension after reaching the age 60. In place of the existing options for an annuity, the subscriber may be provided with an option of SWP – Systematic Withdrawal Plan, similar to that available in mutual fund schemes. It is expected that the SWP in NPS may be introduced in the Budget 2020. The Pension Fund Regulatory and Development Authority (PFRDA) has been asking for SWP for the benefit of NPS subscribers.

Currently, under NPS, 60 per cent of the accumulated corpus can be withdrawn by the NPS subscriber on maturity. The amount withdrawn at age 60 is tax-exempt in the year of withdrawal. Also, the balance amount of 40 per cent is tax-exempt in that year, however, the amount cannot be withdrawn by the subscriber. On the balance 40 per cent, the subscriber will get a pension from a life insurance company.

Watch: Budget 2020: Your income tax burden may come down – Top 5 Expectations

The concern

The annuity payable by the life insurance company depends on the age and the amount invested by the NPS subscriber. The amount of annuity or the pension received by the subscriber is taxable in the year of receipt. This has been the concern with many NPS subscribers as well as potential investors of NPS. The taxation of NPS annuity makes it a bit less attractive when compared to other competitive investment such as EPF or PPF.

The various annuity option in NPS are:

1. Pension payable for life at a uniform rate to the annuitant or to the subscriber only.

2. Pension payable for 5, 10, 15 or 20 years certain and thereafter as long as one is alive.

3. Pension for life with return of purchase price on death of the annuitant.

4. Pension payable for life increasing at a simple rate of 3 per cent per annum.

5. Pension for life with a provision of 50 per cent of the annuity payable to spouse during his/her lifetime on death of

the annuitant.

6. Pension for life with a provision of 100 per cent of the annuity payable to spouse during his/her lifetime on death of the annuitant.

7. Pension for life with a provision of 100 per cent of the annuity payable to spouse during his/her lifetime on death of the annuitant and the return of the purchase price to the nominee.

SWP as an alternative

SWP allows the subscriber to withdraw at a regular interval as per one’s need. Under SWP, the NPS subscriber will have the option to decide how much to withdraw for meeting pension needs. One can withdraw monthly, quarterly, half-yearly or annually under SWP option. It will also give flexibility to the subscriber to manage taxation better. SWP is an existing feature in mutual funds and suits equity schemes more than others. However, it remains to be seen how the taxation of SWP in NPS will take shape in case it is finally introduced.

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