The Pension Fund Regulatory and Development Authority (PFRDA) will allow automatic withdrawals periodically from the subscribers’ National Pension System (NPS) corpus fund as part of a proposed change in the withdrawal regulation.

In its October 28 circular, PFRDA proposed to provide the option of a systematic Lump Sum Withdrawal (SLW) facility to allow phased withdrawal of the lump sum amount.

NPS subscribers can withdraw 60 per cent of their accumulated funds through the SLW facility monthly, quarterly, semi-annually, and annually instead of a one-time withdrawal until 75 years.

The NPS subscribers must use the remaining 40 per cent of the corpus in an annuity plan.

As per the existing rule, the subscriber has three options to manage the NPS corpus on turning 60 or superannuation:  

• The subscribers can continue to contribute to the NPS up to the age of 75 years.
• One can exit and take the withdrawal of 60 per cent in a lump sum and the remaining amount in an annuity.
• The third option is to defer the withdrawal but stay invested without contribution. They can defer the lump sum and the annuity amount or both. However, note that the lumpsum can be delayed for 10 years and annuity for three years.  

Currently, a subscriber can make the lump sum withdrawal in a single transaction or withdraw annually by submitting a withdrawal request every time.

In the new rule, the subscribers can withdraw the lump sum amount at regular intervals (monthly, quarterly, etc.) as per their choice. The withdrawal will be automated once the SLW option is chosen, and the subscriber need not give a request every time the withdrawal is made. Even after opting for the SLW option, the subscribers can cancel it anytime and exit. Then, they will get the remaining balance of their lump sum corpus.

On the utility of the new option, Kurian Jose, CEO, Tata Pension Management, says, “Withdrawal using the recently introduced SLW methodology helps in supplementing the pension a subscriber would receive on purchase of an annuity. This feature can be opted at the time of Superannuation (Retirement) and is applicable only on Lump sum NPS corpus post purchase of the annuity.” 

He adds, “SLW is suitable for all retirees who want to benefit from systematic cash flows in their post-retirement phase, which allows them to meet their periodic expenses. This is also beneficial as the SLW can be opted as a one-time request, and the cash flow would flow periodically as selected by the NPS subscriber.”

So, if a subscriber opts for this option, the corpus will grow in the same way, minus the amount withdrawn from the corpus. The option offers flexibility and reduces operational hassles for subscribers who become senior citizens at the time of withdrawal. They can now remain invested in NPS and use the automated systematic lump sum withdrawals for their needs, just like earning their income while at work. They need not mandatorily look for other avenues to invest their lump sum amount for liquidity. The SLW provides liquidity without much operational formality every time one withdraws.