The Pension Fund Regulatory and Development Authority (PFRDA) has recently invited suggestions on a new proposal that will allow monthly, quarterly, half-yearly or annual withdrawal of the lump sum amount from the National Pension System (NPS) till the age of 75 years. Further, the process can be automated based on the one-time request that can be captured online/offline, PFRDA said.
The deadline to give feedback on this proposal will end on October 19.
If this new proposal of ‘Systematic Lump sum Withdrawal (SLW)’ is accepted, then NPS subscribers will have more flexibility to optimise the use and returns from their retirement corpus.
What is the current rule?
According to the current rule, NPS subscribers can withdraw a maximum of 60 percent as lump sum and utilise the minimum of 40 percent as annuity when they reach the age of superannuation or attain 60 years of age.
In case of premature exit, subscribers can only withdraw 20 percent as lump sum and the rest has to be utilised to buy annuity.
Post 60 years/superannuation, subscribers can defer availing annuity and withdrawing the lump sum on any combination till 75 years. The lump sum amount can be withdrawn as a single tranche, or it can be withdrawn on an annual basis. If withdrawn annually, the subscriber has to initiate the withdrawal request each time, and the request has to be authorised as the case may be.
What’s the proposal?
As per PFRDA, the Systematic Lump sum Withdrawal (SLW) of any defined units/ amount can be provided to the subscribers if opted and requested.
The facility can be provided in both Tier I & Tier II accounts of
NPS.
As a result, subscribers will be able to withdraw lump sum amounts monthly, quarterly, half-yearly or annually.
If the proposal comes into effect, the amount in Tier I would be earmarked for annuity and lump sum as per withdrawal regulations. Partial withdrawal won't be allowed post setting up of SLW.
What are the benefits of SLW?
The choice of SLW at periodical intervals through automation would
add flexibility, provide liquidity and hence optimize the retirement benefits, according to PFRDA.
It will further enable and empower the subscribers with periodical withdrawal to manage his/her needs and requirement. It will allow subscribers to participate and reap market-linked investment gains for the amount not withdrawn, which will continue to lie in PRAN and remain invested as per the investment choice.
Further, this will reduce the risk of reinvestment associated with a one-time lump sum withdrawal even though the option shall continue.
