Under National Pension System (NPS) rules, a subscriber is required to buy an annuity for at least 40% of the total corpus while the remaining amount can be withdrawn as a lump sum in a single tranche or on an annual basis. Subscribers can even opt to buy an annuity with 100% of the amount accumulated in his/her NPS account through years of investment. The Pension Fund Regulatory and Development Authority (PFRDA) is now inviting comments/suggestions on a new proposal that will allow monthly, quarterly, half-yearly or annual withdrawal of the lump sum amount till the age of 75 years.
If the new proposal of ‘Systematic Lump sum Withdrawal (SLW)’ by PFRDA is accepted then NPS subscribers will have more flexibility to optimise the use and returns from their retirement corpus.
Let’s have a look at why PFRDA has made this proposal and how it will benefit subscribers:
What is SLW and why is it required?
Systematic Lump sum Withdrawal will allow NPS subscribers to withdraw their lump sum amount on a periodic basis after making a one-time request.
As per the current NPS withdrawal rules, the subscribers post 60 years/superannuation, can defer availing annuity and withdraw the lump sum on any combination till 75 years. PFRDA says in its “Exposure Draft” for the new proposal that the lump sum amount can be withdrawn as a single tranche or it can be withdrawn on annual basis. If withdrawn annually, the Subscriber has to initiate the withdrawal request each time and the request has to be authorized as the case may be.”
In order to ease the process of lump sum withdrawal, the regulator has proposed that “lump sum can be paid systematically on a periodical basis viz monthly, quarterly, half-yearly or annually for a period till 75 years as per the choice of the Subscriber. Further, the process can be automated based on one-time request that can be captured online/offline.”
After the subscriber makes the one-time request for SLW, there won’t be any “further contribution in Tier I and the amount in Tier I would be earmarked for Annuity & lump sum as per exit regulations. Partial withdrawal won’t be allowed post setting up of SLW.”
For Tier-II NPS account, the regulator has proposed that SLW can be availed at any point of time i.e. even before attaining the age of 60 years.
Benefits of SLW
The regulator has outlined four major benefits of SLW for subscribers:
- According to the proposal, the choice of SLW at periodical intervals through automation would add flexibility, provide liquidity and hence optimize the retirement benefits.
- It will also enable the subscribers with periodical withdrawal to manage their needs and requirement.
- Further, subscribers would be able to participate and reap market-linked investment gains for the amount not withdrawn which continue to lie in PRAN and remain invested as per the choice of investment.
- The SLW facility will also “reduce the risk of reinvestment associated with one-time lump sum withdrawal even though the option shall continue.”
Meanwhile, the PFRDA has decided to allow retired Government and Corporate sector NPS subscribers to continue their existing investment pattern and Pension Fund (PF) choice upon shifting to the All Citizen Sector (Read Full Story).