NPS Withdrawal New Rule: Is Systematic Lump Sum Withdrawal A Better Option For You?

The Systematic Lump sum Withdrawal (SLW) plan in NPS investments allows you to withdraw your corpus in specific timeframes that too in a lump sum instead of the usual monthly pensions.

The Pension Fund Regulatory and Development Authority (PFRDA) has recently proposed the introduction of SLW facility, allowing subscribers to make gradual lump sum withdrawals.

In the said rule, subscribers can withdraw up to 60% of their pension fund via SLW with monthly, quarterly, half year, or annual withdrawal, which can continue up till their 75 years of age as per their preference at the time of normal retirement.

On October 27, 2023, a circular published by PFRDA made this announcement.

What is the current NPS withdrawal rule?

The current rule, on the other hand, says that subscribers of 60 years or those reaching superannuation can defer annuity and lump sum withdrawal up to the age of 75 years. A subscriber can withdraw the lump sum either as a single tranche or annually and should initiate each annual withdrawal.

Protean CRA launched the SLW for the NPS subscribers. This allows subscribers to withdraw the lump sum corpus in parts after maturity, and systematically withdraw the amount they desire every interval similar to an SMP in mutual funds.

Advantages of SLW

SLW has several advantages as it generates consistent cash flows, brings in additional income when combined with annuity, provides a means to creating wealth, and also offers tax benefits for all such withdrawals.

In this regard, NPS subscribers will be free to select the lump sum with systematic withdrawal for approximately 60% of their lump sum portion. Forty percent will be used to purchase annuity while the rest of 60% will be distributed to investors. The annuity purchase rule will remain unchanged.

About NPS

The National Pension System (NPS) is a voluntary retirement scheme wherein one makes monthly contributions to their NPS Tier I or Tier II accounts to secure their non-working years.

The amount contributed also earns interest on a monthly basis. The NPS interest rate generally ranges between 9% and 12%, which is calculated on a compounding basis that eventually leads to building a significant corpus.