According to a report in The Economic Times, the Centre is contemplating a potential change to the National Pension System (NPS) withdrawal rule. NPS subscribers may soon have the opportunity to withdraw their pension amount through the newly proposed Systematic Lumpsum Withdrawal (SLW) option, expected to be implemented by the end of this quarter.
Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), Deepak Mohanty, stated that the Systematic Lumpsum Withdrawal feature would enable NPS subscribers to choose periodic withdrawals, such as monthly, quarterly, half-yearly, or annually, until the age of 75 years.
Currently, upon reaching the age of 60 years, NPS subscribers are permitted to withdraw a lump sum amount of up to 60% from their retirement corpus. The remaining portion (40%) of the corpus is mandatory to be utilized for purchasing an annuity.
In addition, NPS subscribers have the flexibility to defer their lump sum withdrawals until the age of 75 years. By choosing this option, investors in the NPS can opt for a ‘phased withdrawal’ approach. With the phased withdrawal option, subscribers can make partial withdrawals on an annual basis by submitting a request each year.
New NPS Withdrawal Rules
According to a recent report, the Pension Fund Regulatory and Development Authority (PFRDA) is planning to introduce more flexible withdrawal rules for NPS subscribers. Instead of withdrawing the entire 60% corpus in one go, subscribers will have the option to withdraw the amount periodically, whether on a monthly, quarterly, semi-annual, or annual basis, until they reach the age of 75.
Under this new rule, the remaining NPS corpus will remain invested with the PFRDA and continue earning returns until the entire corpus is withdrawn.
PFRDA Chairman, Mohanty, stated to ET that NPS subscribers will now have the choice to opt for the Systematic Lumpsum Withdrawal option for a period of 15 years, extending until they reach the age of 75 upon retirement. This facility will be available for both tier-I and tier-II accounts.
Details of NPS Withdrawal Rule
As outlined in the September 2022 draft proposal by PFRDA, NPS investors will need to submit one-time requests, either online or offline, to activate the periodic payout option.
During this process, subscribers will be required to specify crucial details such as the desired periodical amount, start date, end date, and other relevant information.
It is important to note that if subscribers choose the Systematic Lumpsum Withdrawal option, they will no longer be able to make any additional contributions to their tier-I account.
As previously mentioned, the balance amount after each periodic payment will remain invested within the NPS framework. According to the draft proposal, this provision allows subscribers to actively participate in the market and potentially benefit from investment gains on the amount that remains unwithdrawn. The funds will continue to be associated with the Permanent Retirement Account Number (PRAN) and will be invested according to the subscriber’s chosen investment preferences.
Unaltered Annuity Purchase Rule
According to the report, the proposed changes will exclusively impact the 60% lump sum component of NPS withdrawals. The remaining 40% will continue to be utilized for the purchase of an annuity. PFRDA Chairman, Mohanty, confirmed that the annuity purchase rule will remain unchanged amidst the forthcoming modifications.
