The Pension Fund Regulatory and Development Authority (PFRDA) has recommended to the government that it allow systematic withdrawal plans (SWPs) by subscribers from the National Pension System (NPS) instead of buying annuities. The PFRDA also favours increasing deduction from Rs 50,000 to Rs 1 lakh under Section 80CCD (1B) in the NPS. It is also seeking changes in the PFRDA Act to make it the sole regulator for all the pension products.

Supratim Bandyopadhyay, member (finance) at PFRDA, said: “We have already proposed changes in the PFRDA Act that there should be a single regulator for pension products and allow SWPs for investors instead of buying annuities. We expect the PFRDA Act to be placed in the Budget session.”

The PFRDA in its Budget proposals have also asked the government to increase the deduction under Section 80CCD (1B) to Rs 1 lakh from existing `50,000 per annum.

Currently, under the NPS, at least 40% of the accumulated pension wealth of the subscriber needs to be utilised for purchase of an annuity providing for the monthly pension to the subscriber and the balance 60% is paid as a lump-sum to the subscriber. But with tax and lower returns in annuities, it is better to opt for SWP, say PFRDA officials.

Currently, mutual fund houses in India provide SWP to investors, wherein they are provided with a specific amount of payout at pre-determined time intervals such as monthly, quarterly, half-yearly or annually.

“Returns of annuities differ from one company to another, but as of now, annuities give returns of around 6.25%. On the other hand, NPS returns are anywhere between 9.5% and 10%. Also there is an indication that interest rates will move down and if interest rates moves down, then annuities rates also go down,” said Bandyopadhyay. He added that they would have to see the taxation structure and the duration for which subscriber could continue to get SWP as it will be a completely new product.

Even as 60% of the total money received at maturity from NPS is tax-free, annuities are taxed, either as income from salary or income from other sources.

The PFRDA has also suggested that only interest earned should be taxed and not the entire annuity amount. As on December 14, 2019, total assets under management of NPS was `3.92 lakh crore.