In a bid to make the National Pension System (NPS) more attractive and meet the subscriber’s sudden financial requirement, pension fund regulator PFRDA (Pension Fund and Regulatory Development Authority) has liberalized norms for partial withdrawals of funds under NPS. With this NPS subscribers will now be able to partially withdraw funds from their accounts for certain purposes, including setting up/ acquiring a new business or pursuing higher education.
“Partial withdrawals will now be allowed to NPS subscribers who wish to improve their employability or acquire new skills by pursuing higher education/ acquiring professional and technical qualifications,” the PFRDA said in a statement, as per a PTI report.
The PFRDA board, in a meeting last week, also decided to hike the cap on equity investment in ‘active choice’ category to 75% from the current 50% for private sector NPS subscribers.
It may be noted that the government had recently announced that the NPS subscribers can partially withdraw funds after 3 years from the date of joining it as against the earlier norm of 10 years from the date of joining the system.
Commenting on the PFRDA move, financial experts say that one of the biggest drawbacks for NPS was its rigid liquidity rules. However, with exceptions being allowed for withdrawals similar to EPF, more people are now likely to invest in such a pension scheme. It’s a good option to resort to for those who don’t want to be burdened by taking a fresh loan for, say, studying or starting a new business.
Is Premature Withdrawal of Funds a Good Option?
Whatever be the case, experts believe that premature withdrawal of funds is not a good idea in any long-term scheme, especially a pension one. However, given that one may need money at crucial professional junctures in one’s life, it’s good to have an option to resort to other than taking a loan.
“One must remember though that the amount withdrawn will be now absent from the retirement corpus originally planned for. In such a case one should find a replacement investment, if not immediately then at least for a good amount of time before retirement kicks in. Remember that the retirement corpus must never fall short given that one’s earning capacity reduces or halts post it,” says Adhil Shetty, CEO, Bankbazaar.com.
Naveen Kukreja, CEO & Co-founder, Paisabazaar.com, also says that withdrawing from any investments, including NPS, earmarked for creating post-retirement corpus should be best avoided as it will severely hamper the growth of your post-retirement corpus. However, “withdrawing from NPS for productive purposes, such as pursuing higher education or setting up a new business, is fine as it can enhance your future earnings. The alternative to withdrawing from NPS would be to avail loans whose interest rates would most likely be lower than the returns generated from NPS,” he adds.