The Pension Fund Regulatory and Development Authority (PFRDA) has rolled out a series of changes to the National Pension System (NPS) with the aim of providing subscribers greater flexibility at the time of retirement and ensuring a higher corpus. Some of the major changes under the revised framework include a reduction in the mandatory annuity purchase to 20% of the accumulated corpus, a lower lock-in requirement, and a longer investment tenure.
Lower annuity mandate
At present, an NPS subscriber had to mandatorily annuitise 40% of the corpus. This meant that at the time of exit, only 60% of the corpus could be withdrawn as a lump sum, while the remaining 40% was paid out as a monthly pension. This requirement has long deterred investors from opting for NPS.
The PFRDA has now changed the rules, halving the mandatory annuitised amount to 20% of the corpus, and that too only when the total pension corpus exceeds Rs12 lakh.
If the total corpus is below Rs8 lakh, the entire amount can be withdrawn as a lump sum.
If the retirement corpus is between Rs8 lakh and Rs12 lakh, the PFRDA has introduced a Systematic Unit Redemption (SUR) facility. This allows subscribers to withdraw their savings in a phased manner over a minimum period of six years, enabling a lump-sum withdrawal of up to Rs6 lakh, with the balance paid through SUR and without any annuity requirement.
SUR is also permitted in the case of a subscriber’s death, under the same corpus limits and withdrawal structure.
“The practical benefit is smoother monthly or quarterly income during early retirement, predictable redemptions aligned with living expenses, and less stress about market timing,” said Chakravarthy V., cofounder and executive director, Prime Wealth Finserv Pvt. Ltd.