According to PFRDA, the pension fund regulator, the National Pension System (NPS) is set to become more appealing to attract more subscribers with the introduction of a systematic withdrawal plan. The new plan will provide NPS members who have reached retirement age of 60 the option to withdraw their accumulated corpus gradually, providing greater flexibility and control over their retirement savings.

 

PFRDA Chairman Deepak Mohanty stated that the development of the systematic withdrawal plan is nearing completion and will be announced by the end of the next quarter. Instead of being constrained by an annuity for their whole post-retirement term, subscribers will be allowed to set their desired cadence for withdrawing cash under this system. This adaptability enables individuals to satisfy specific financial needs, particularly when a larger corpus is required.

 

The proposed 'Systematic Lumpsum Withdrawal (SLW)' Option allows NPS subscribers to determine the frequency of withdrawals, whether monthly, quarterly, half-yearly, or annually, until they reach the age of 75. Subscribers who choose this option can benefit from liquidity, market-linked returns, and the possibility for their retirement funds to increase for an extra 15 years due to the power of compounding. The benefits of the SLW Option include promoting discipline, leveraging rupee-cost averaging, building the nest egg, and limiting the impact of inflation through this systematic withdrawal approach.

 

NPS customers must submit a request requesting the SLW option, together with the desired frequency of withdrawals, start and end dates. It's crucial to keep in mind that once the SLW is turned on, contributions to the mandatory Tier I account cannot be made. Additionally, subscribers have the option to delay withdrawals, keep their money invested with the 60% component, and choose their drawdown schedule according on their financial situation and risk tolerance. The remaining 40% will be used to buy an annuity which is tax-exempt and not subject to Goods and Services Tax (GST).

 

The Public Provident Fund (PPF) and Employees Provident Fund (EPF) are comparable options, but the NPS, which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), has proven to deliver impressive long-term market-linked returns. However, it's crucial to take into account how the NPS withdrawal regulation change would affect taxes. All such withdrawals are expected to be completely taxed until corresponding tax relief is implemented. The pension received from the annuity is classified as income and is taxed appropriately, whereas partial withdrawals and annuity purchases benefit from tax breaks. The NPS lacks complete tax-exempt status, unlike the PPF or EPF.

 

When a member reaches age 60, the current NPS withdrawal rule allows them to withdraw up to 60% of their retirement fund as a lump sum, with the remaining 40% being required to be used to buy an annuity. By introducing the systematic withdrawal plan, NPS hopes to offer subscribers a reliable investment option for their retirement requirements, guaranteeing that market-linked returns and estimated risks are in line with their comfort levels. 

 

NPS subscribers should anticipate enhanced benefits and greater flexibility in managing their retirement funds when PFRDA completes the systematic withdrawal plan. Subscribers must stay updated about the new withdrawal choices, evaluate how they fit with their long-term financial objectives, and, if necessary, seek expert guidance. The systematic withdrawal plan in NPS marks a significant step towards empowering individuals in their retirement planning journey.