The Pension Fund Regulatory and Development Authority (PFRDA) is looking to give an option of having a systematic withdrawal plan (SWP) for National Pension System (NPS) instead of buying annuities. PFRDA is also in the process of to announce three more players to manage the NPS corpus in the next few days. “Recently at a meeting with the finance ministry, we provided our investors with an offer of systematic withdrawal plan (SWP), under which individuals will have an option to have between 15-20 years where they can withdraw a fixed sum from their pension fund.
Partial withdrawals has been exempted from tax and we are expecting SWP to also have similar treatment,” PFRDA chairman Hemant Contractor said. Currently, the subscriber is required to utilize at least 40% of the accumulated wealth in the NPS account for purchase of annuity(pension), while remaining 60% can be withdrawn as lump sum. As per section 10(12A) of the Income Tax Act, 1961, 40% of the accumulated NPS corpus is exempt from tax at the time of withdrawal.
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. Senior officials in the industry say poor returns of annuities are the reasons why NPS has not picked up in the big way and regulator has to think of bringing in option of SWP.
In the 2015 Budget, finance minister Arun Jaitley had introduced an additional income tax deduction of R50,000 for contribution to NPS under Section 80CCD(1B). This is above the Section 80C limit of R1.5 lakh. The deduction is irrespective of the type of employment. So, a government employee, a private sector employee, a self-employed or an ordinary citizen can claim tax benefit. The money is managed by six fund managers appointed by the PFRDA.
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Contractor also added that, they are receiving positive response in the NPS as well as Atal Pension Yojana (APY). “We are getting many new people in both NPS and APY. In the non-government segment we are opening around 8,000 accounts every day under APY and 3,000 accounts in normal NPS,” added Contractor. The Assets Under Management (AUM) under NPS have increased from R1,61,016 crore as end of December, 2016 to R1,66,847 crore as at the end of January, 2017 a rise of 3.62 % during the month of January 2017.