NPS subscribers can soon opt for periodic withdrawals; check details here

PFRDA says subscribers can leave their 60% corpus in NPS and can receive it back in a staggered manner, such as monthly, quarterly, semi-annually, or annually, until the age of 75

Deepak Mohanty, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), said that subscribers to the National Pension System (NPS) are expected to get the systematic lump sum withdrawal (SLW) option by the end of this quarter.

He said that NPS subscribers can use the SLW feature to make monthly, quarterly, half-yearly, or annual withdrawals until they reach the age of 75.

NPS subscribers can currently withdraw up to 60 per cent of their retirement corpus as a lump sum once they reach the age of 60. The remaining 40 per cent of the corpus must be spent on purchasing annuities.

Another option for NPS subscribers is to defer lump sum withdrawals until the age of 75. In addition to deferring the lump sum withdrawal, NPS investors have the option of a "phased withdrawal" each year.

The NPS subscribers can withdraw a portion of their subscription on an annual basis with this option, but they must make the request each year.

Changes to the NPS exit rules

The PFRDA will give subscribers the option of leaving their 60 per cent corpus in NPS and receiving it back in a staggered manner, such as monthly, quarterly, semi-annually, or annually, until the age of 75. Until the entire NPS corpus is withdrawn, the remaining funds will be invested.

Mohanty said that the NPS members can choose to withdraw their full 60 per cent in one lump sum when they turn 60, or they can choose the SLW option, which they can do over the next 15 years until they are 75.

This facility will be available to both tier I and tier II accounts. The SLW option for tier II accounts can be activated before the subscriber reaches the age of 60.

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The working of the NPS SLW option

According to the draft proposal released by the PFRDA in September 2022, NPS investors must initiate one-time requests through online or offline modes to activate this periodic payout option. Once the SLW option is enabled, NPS subscribers cannot make any further contributions to the tier-I account. Furthermore, after initiating the SLW option, partial withdrawal will be prohibited.

When requesting a SLW, NPS investors must specify the number of units or the amount they want to withdraw at what intervals. The remaining balance of each payment will continue to be invested in the NPS.

"This option allows the subscribers to participate and reap market-linked investment gains for the amount not withdrawn which continue to lie in permanent retirement account number (PRAN) and remain invested as per the choice of investment,” the draft proposal said.

At the time of exit, subscribers can make a one-time lump sum withdrawal, a SLW, deferment, or continuation.

The option of SLW at periodic intervals via automation would add flexibility, provide liquidity, and thus optimise retirement benefits, the draft proposal said.

For the 60 per cent lump sum component, NPS subscribers will be able to choose a SLW option. The remaining 40 per cent will be used to purchase an annuity. The annuity purchase rule will remain unchanged, said the PFRDA chairman.