The Pension Fund Regulatory and Development Authority (PFRDA) has proposed the introduction of a systematic lump sum withdrawal facility. This will allow subscribers to receive regular payments instead of withdrawing the sum in one go from their National Pension System (NPS) investment.
As per the revised rules, up to 60 per cent of their NPS maturity amount can be withdrawn in installments till the subscribers attain the age of 75 years.
The payments can be monthly, quarterly, semi-annually and annually.
In order to keep subscribers informed, the regulator urged Central Record Keeping Agencies (CRAs) to keep them informed of the latest changes.
What are the current rules?
It is important to note that currently the investors are only allowed to withdraw 60 percent of their NPS corpus as lump sum on maturity, and the remaining 40 percent of the corpus is to be used as an annuity.
For example, if a subscriber has accumulated ₹50 lakh as NPS corpus, ₹20 lakh (40%) is supposed to be withdrawn as annuity, and the rest ₹30 lakh (60%) is treated as lump sum.
What has changed now?
With the new rules in place, the lump sum component — together with the annuity — may also be withdrawn in installments which may be monthly, quarterly, semi-annually and annually.
In the case above, the lump sum component of ₹30 lakh can be withdrawn in installments along with equivalent annuities ₹20 lakhs.
What are the benefits of choosing this?
The benefits of choosing systematic withdrawals are to increase the cash flow on a regular basis. So, instead of relying on 40 percent of the corpus for annual payouts, subscribers can now also use their lump sum component of 60 percent to generate regular income.
In addition, subscribers can prevent the negative impact of a bearish market at the time of exit. When they choose the lump sum method, they have to settle for lower returns. But if it happens that one develops the payment over a period of time, you can save yourself from the impact of the bearish market.
It is important to note that the entire 60 percent lump sum income is tax free and the annuity income is taxable according to the investor’s tax slab.
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Updated: 01 November 2023, 05:37 PM IST
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