The NPS lump sum payment can be withdrawn in a single tranche or on an annual basis. If withdrawn annually, the subscriber must initiate the withdrawal request each time, and the request must be authorized. Due to the lack of flexibility and the requirement to submit a request each time, the subscribers have not yet adopted the existing phased withdrawal in a widespread manner. Additionally, the service is only available once a year.
Now, PFRDA has suggested in a exposure draft (issued on September 29, 2022) on Introduction of Systematic Lump sum Withdrawal (SLW) for the benefit of NPS Subscribers and facilitate them with smart withdrawal facility, “The lump sum can be paid systematically on a periodical basis viz monthly, quarterly, half yearly or annually for a period till 75 years as per the choice of the Subscriber. Further, the process can be automated based on one-time request that can be captured online/offline.”
The subscribers’ Central Record Keeping Agency (CRA) System Withdrawal module is already integrated with Instant Bank Acct verification and name matching through penny drop of PRAN and Bank details. If desired and requested, the subscribers may also receive Systematic Lump sum Withdrawal (SLW) of any defined units or amount. The facility is available in Tier I and Tier II.
According to the exposure draft, “However, post capturing SLW request, there won’t be any further contribution in Tier I and the amount in Tier I would be ear marked for Annuity & lump sum as per exit regulations. Partial withdrawal won’t be allowed post setting up of SLW.
Proposal of SLW:
The facility of SLW for Tier I and Tier II accounts can be provided to enhance the benefits to subscribers based on a one-time mandate that can be collected from Subscribers for processing redemption of units and transfer of funds in the verified bank account at predefined intervals.
In the case of Tier-II, the SLW is accessible at any moment, even before the age of 60. This is mostly due to the fact that withdrawals from Tier-II are possible at any time, and when this facility is implemented, it will function as a monthly income for the subscriber or his family.
Various options for NPS subscriber
Many alternatives are offered to subscribers at the time of retirement, including one-time lump sum withdrawal, SLW, deferment, continuation, etc. through outreach activities like the Annuity Literacy Program (ALP) and SEEP (Subscribers Education & Empowerment Program).
Benefits of Systematic Lump sum Withdrawal (SLW):
According to the exposure draft, these are the main benefits of SLW
a. The choice of SLW at periodical intervals through automation would add flexibility, provide liquidity and hence optimize the retirement benefits.
b. Enable and empower the Subscribers with periodical withdrawal to manage his needs and requirement.
c. 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.
d. Reduce the risk of reinvestment associated with one-time lump sum withdrawal even though the option shall continue.