The pension body Pension Fund Regulatory and Development Authority is planning to bring in changes in the withdrawal options of the National Pension System (NPS).
The retirement fund corpus can be withdrawn in two parts: 40 percent is withdrawn as annuity, and the remaining 60 percent is withdrawn as lumpsum at the time of retirement.
Since the pension fund is allocated to equity as well, the wrong timing of withdrawal can possibly wipe out years of wealth creation. To prevent this from happening and to minimise the impact of bear market, pension body is set to introduce a change that we elaborate below:
It is worth mentioning that PFRDA chairman Deepak Mohanty in April made an announcement of intending to launch systematic withdrawal plans (SWP).
So, the NPS members will soon be able to choose SWP with regards to their 60 percent lumpsum component. The subscribers will be able to leave this NPS amount within the NPS system and subscribers will be able to receive a fixed sum from their savings on a monthly, quarterly or half-yearly basis.
This is meant to help those investors who retire during a bearish market and also those who want to earn better returns within the NPS framework rather than exploring alternative investment options.
The pension body is set to roll out another change with regards to the 40 percent annuity portion. Once the change comes into force, the NPS members will be able to opt for a mix of schemes instead of a single scheme against this annuity portion.
As we are aware, annuity products entail a fixed payout to investors. To enable members to direct annuity components to a variety of schemes, NPS is set to roll out technological changes.
It is vital to mention here that the Pension regulator last month enabled the NPS subscribers to view their pension fund corpus along with their demat securities and mutual fund holdings under a single consolidated account statement (CAS)
This functionality is expected to provide a simplified and secured way to stay informed on NPS investments through CAS.
CAS — provided by National Securities Depository Ltd and Central Depository Services —— offers a consolidated view of personal investments in the securities market with updated mark to market values.
First Published: 04 Sep 2023, 08:50 AM IST