The National Pension Scheme (NPS) is a voluntary, well-defined- contribution retirement benefits scheme system in India that is regulated by an authority called PFRDA (Pension Fund Regulatory and Development Authority) under the Ministry of Finance.
This scheme is designed to enable its subscribers to make ideal decisions regarding their future through the savings that they have made during their working life. This scheme instills the habit of saving for retirement among its citizens as an attempt to find a legitimate solution to the problem of providing sufficient pensions to every citizen of the country.
In this scheme, all the funds that are invested by PFRDA regulated professional fund managers as the individual savings of the citizens that grow and pile up over the years are combined into a pension fund which at the time of exit, can either be withdrawn by the beneficiary or be used to purchase a life annuity from an organization enlisted Life Insurance Company.
The subscribers of the National Pension Scheme are expected to get a new option for withdrawing their funds, known as Systematic Lumpsum Withdrawal (SLW) by the end of this quarter. This feature will enable its subscribers to go for periodic withdrawals of their savings. These periodic withdrawals can be done either monthly, quarterly, half-yearly, or annually until the subscriber reaches the age of 75 years.
How does NPS currently work?
Right now, as the subscribers turn 60 years of age, they can withdraw 60% of their retirement amount altogether and the rest 40% goes into buying an annuity mandatorily. Apart from this, the subscribers can also postpone the lump sum withdrawals of 60% till 75 years of age, and if they select this option called ‘phased withdrawal’ in which they have to submit the request every year to withdraw their amount partially on an annual basis.
What will change?
But now, PFRDA is all set to offer the flexibility to its subscribers to not withdraw 60% at once but in a staggered manner like monthly, quarterly, half-yearly, or annual basis till 75 years of age and until completely withdrawn, the remaining amount will keep earning returns meanwhile.
This facility can be enjoyed by both Tier-I and Tier-II accounts and for the Tier-II accounts, this option can be initiated even before the subscriber turns 60.
It can provide liquidity to the subscriber and allow the savings to continue growing with returns linked to the market for additional 15 years. It’ll also give a disciplined approach to the subscriber to benefit from rupee-cost averaging and ensure long-term financial stability.
How to activate the SLW option?
To activate the SLW option, the subscribers will need to submit a one-time online or offline request to activate this payout option, in which they need to mention the desired withdrawal frequency with its start and end dates. Once SLW gets activated, subscribers will not be able to make contributions to mandatory Tier I accounts.