The Pension Fund Regulatory and Development Authority (PFRDA) has recently allowed the National Pension System (NPS) subscribers to withdraw the full contributions in one go without purchasing annuity if the pension corpus is equal to or less than Rs 5 lakh.
In simple words, this means that subscribers can withdraw their entire money at one go if the pension corpus is up to Rs 5 lakh.
The increased threshold, Rachit Chawla, CEO and Founder of Finway FSC believes, will offer more liquidity in the hands of the investors. Also, they could invest the withdrawn money into other investment avenues to earn better returns.
According to Naveen Kukreja - CEO and Co-founder, Paisabazaar, the new changes will benefit small investors as the smaller size of their corpus and decreasing returns from annuities yield inadequate pension income for meeting their needs or requirements.
"The increased freedom and liquidity for small NPS subscribers in managing their NPS proceeds should also help in increasing the penetration of NPS among small investors," Kukreja says.
At present, beneficiaries can withdraw up to Rs 2 lakh from their NPS account. Beyond this limit, the pensioners can withdraw 60 percent of the contributions. At least 40 percent of the contributions have to be mandatorily parked in government-approved annuities, according to the current rule.
NPS, as we know, is a government-run investment scheme that gives the subscriber the option to set the preferred allocation to different asset classes. It offers two kinds of accounts — Tier 1 and Tier 2 — for instruments including government bonds, equity market and corporate debt.
While the Tier 1 NPS account is strictly a pension account, the Tier 2 account — known as an investment account — is a voluntary saving account associated with the Permanent Retirement Account Number (PRAN).
Currently, it allows investors to prematurely withdraw only after the completion of three years, where the withdrawal amount cannot exceed 25 percent of contributions made by the subscribers.
Withdrawal is allowed only against the specified reasons, for example—higher education of children, the marriage of children, for the purchase/construction of the residential house (in specified conditions) and for treatment of critical illnesses.
The subscribers can make a partial withdrawal a maximum of three times during the entire tenure of subscription under NPS. The partial withdrawal request can be initiated online by the subscriber.
Also read | Here are 5 benefits of NPS investments
Additionally, PFRDA has increased the maximum age of entry into the NPS from 65 to 70. The exit age limit has also been extended to 75 years. In a gazette notification, the pension regulator has also stated that the premature withdrawal limit on a lumpsum basis for NPS has been increased to Rs 2.5 lakh from Rs 1 lakh.
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First Published: IST