National Pension System (NPS) subscribers can now opt for automated periodic withdrawals of 60% of their pension corpus through the Systematic Lumpsum Withdrawal (SLW) facility, approved by the pension regulator PFRDA.
With this latest PFRDA move, NPS subscribers can avail of the SLW facility through an automated route periodically – monthly, quarterly, half-yearly, or annually – for a period till 75 years of age as per their choice at the time of their normal exit.
All three Central Record Keeping Agencies (CRAs) have implemented the necessary technology changes for the rollout of the SLW facility to enable periodic withdrawals. Currently, NPS subscribers post 60 years/superannuation could defer availing of annuity and withdrawing the lump sum on any combination till 75 years of age.
Prior to the latest PFRDA move, the lump sum amount was allowed to be withdrawn in a single tranche or annually, requiring the NPS Subscriber to initiate the withdrawal each time.
Now, NPS subscribers can opt for a one-time request for automated periodic withdrawals with monthly, quarterly, half-yearly, and annual intervals.
Moreover, an NPS Subscriber can cancel the SLW anytime to claim the balance of the 60% corpus. However, once an SLW is set up, no fresh contributions would be allowed to the account.
Initially, this periodic withdrawal facility under SLW is being implemented only for Tier-I accounts. Eventually, this automated withdrawal under SLW will be available for Tier II accounts as well.
NPS subscribers could deploy the lump sum amount (on retirement) in NPS, derive competitive returns at low costs, and have drawdowns with desired periodicity. This will be an additional option for highly risk-averse subscribers, ensuring efficient delivery of services and reducing compliance burden and costs of intermediaries.
From 60 years (on retirement) till 75 years, NPS subscribers can remain within the NPS system and avail monthly, quarterly, semi-annual, or yearly systematic withdrawals. They can either take their 60% at once when they retire at 60 years or stretch it over the next 15 years till they turn 75 years through a systematic withdrawal plan. This flexibility allows for higher returns and redemption as they go. Retirees not adept at managing money can settle for periodic lump sum withdrawals in their golden years.
This SLW flexibility is essentially targeted at non-government sector subscribers – corporate and all citizens model categories, seen as the growth drivers for NPS assets.
This SLW facility is also significant given the perceived low annuity returns in the Indian financial system.
In September last year, the PFRDA issued an exposure draft and sought stakeholder comments on the introduction of SLW to benefit NPS subscribers and facilitate them with a periodic lump sum withdrawal facility.
NPS is a pension scheme introduced by the Pension Fund Regulatory and Development Authority (PFRDA) in India in 2004. As of October 7, 2023, the total assets under management (AUM) stood at over ₹10.21 lakh crore.
NPS is mandatory for government servants who joined the service on or after January 1, 2004. For other individuals, NPS is a voluntary scheme that allows subscribers to contribute towards their retirement savings during their working life.
The NPS is open to all Indian citizens between the ages of 18 and 70 years.