NPS Withdrawal Rule Under Revision: Centre Considers Periodic Withdrawal of Funds Instead of Lump Sum

NPS Withdrawal Rule Under Revision: The National Pension System (NPS) withdrawal rule may be modified by the Centre. According to a report in The Economic Times, NPS participants may be able to withdraw their pension amount through the Systematic Lumpsum Withdrawal (SLW) option by the end of this quarter.

Deepak Mohanty, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), stated that the Systematic Lumpsum Withdrawal feature will enable NPS participants to choose periodic withdrawals, such as monthly, quarterly, semi-annually, or annually, until the age of 75.

Currently, NPS participants can withdraw up to 60 percent of their retirement fund as a single sum upon reaching age 60. The remaining portion (40%) of the corpus must be used to purchase an annuity.

In addition, NPS participants can defer lump sum withdrawals until age 75. If they defer withdrawal, NPS investors can choose a “phased withdrawal” option. Under this option, the NPS subscriber can withdraw a portion of their contributions annually and must submit the request annually.

New guidelines for withdrawal

According to the report, the PFRDA intends to offer subscribers a flexible rule prohibiting the withdrawal of the entire 60% corpus at once. Instead, the quantity can be withdrawn on a periodic basis, such as monthly, quarterly, semi-annually, or annually, until age 75.

Under this rule, the residual NPS corpus held by the PFRDA will remain invested and continue to generate returns until the entire corpus is withdrawn.

Mohanty told ET that NPS participants will now have the option to select the Systematic Lumpsum Withdrawal option for the next 15 years, or until they reach the age of 75 at retirement. This service will be available for both tier I and tier II accounts.

NPS Withdrawal Rule Under Revision

To activate this periodic distribution option, NPS investors must submit a one-time request via online or offline channels, per the PFRDA’s September 2022 draught proposal.

At this juncture, the subscribers must specify the periodic amount, start date, end date, etc.

Notably, if the subscriber chooses the Systematic Lumpsum Withdrawal option, they will not be able to make any additional contributions to the tier-I account.

As mentioned previously, the remaining balance after each payment will remain invested in NPS. According to the draught proposal, “this option enables subscribers to participate and earn market-linked investment gains on amounts not withdrawn from PRAN that continue to be invested in accordance with their investment preference.”

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The rule for the acquisition of annuities

According to the report, adjustments will only be made to the 60% lump sum component. The remaining forty percent will be invested in an annuity. The annuity purchase norm will remain unchanged, according to PFRDA chairman Mohanty.