NPS withdrawal rule set to change: Centre may introduce periodic withdrawal of funds instead of lump sum

The Centre might tweak the National Pension System (NPS) withdrawal rule. NPS subscribers might get a chance to withdraw their pension amount through the Systematic Lumpsum Withdrawal (SLW) option by the end of this quarter, a report in The Economic Times said.  

Deepak Mohanty, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), said that the Systematic Lumpsum Withdrawal feature will allow NPS subscribers to opt for periodic withdrawals, like monthly, quarterly, half-yearly, or annually, till the age of 75 years. 

Currently, NPS subscribers, after attaining the age of 60 years, can withdraw up to 60 per cent of the retirement corpus as a lump sum. The remaining part (40 per cent) of the corpus mandatorily goes into buying an annuity.  

Besides, NPS subscribers can also defer lump sum withdrawals till the age of 75 years. If they defer the withdrawal, NPS investors can opt for 'phased withdrawal'. Under this option, the NPS subscriber can withdraw partially on an annual basis and has to submit the request every year. 

New rules of withdrawal 

As per the report, PFRDA is planning to offer subscribers a flexible rule of not withdrawing the entire 60 per cent corpus in one go. Instead, the subscribers can withdraw the amount in a periodical manner, such as monthly, quarterly, semi-annual, or annual basis till the age of 75.  

Under this rule, the remaining NPS corpus with the PFRDA will remain invested and keep earning returns until the corpus is completely withdrawn. 

NPS subscribers will be now given an option to choose the Systematic Lumpsum Withdrawal option for the next 15 years till they turn 75 at their retirement time, Mohanty told ET. This facility will be provided for both tier-I and tier-II accounts. 

Withdrawal rule details 

According to the draft proposal released by PFRDA in September 2022, NPS investors have to initiate one-time requests through online or offline modes to activate this periodic payout option. 

At this point, the subscribers will have to specify the periodical amount, start date, end date, and so on.  

It is to be noted that if the subscribers opt for the Systematic Lumpsum Withdrawal option, they cannot make any further contributions to the tier-I account. 

The balance amount after each payment, as mentioned earlier, will stay invested in NPS. “This option allows the subscribers to participate and reap market-linked investment gains for the amount not withdrawn which continue to lie in PRAN and remain invested as per the choice of investment,” as per the draft proposal. 

Annuity purchase rule 

As per the report, the changes will be made only for the 60 per cent lump sum component. The remaining 40 per cent will be used to purchase an annuity. The annuity purchase rule will remain as it is, PFRDA chairman Mohanty added.