National Pension System ,benefits and New rules of NPS.
Introduction( National Pension System)
The National Pension System (NPS) is a voluntary, defined contribution pension scheme in India that aims to provide financial security and stability to citizens in their old age. The NPS allows subscribers to accumulate savings during their working years and receive a regular income after retirement. The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and offers various investment options and tax benefits to subscribers¹.
The New NPS Rule:
Systematic Lump Sum Withdrawal (SLW) One of the features of the NPS is that subscribers can withdraw up to 60% of their accumulated corpus as a lump sum at the time of exit, while the remaining 40% has to be used to purchase an annuity from an Annuity Service Provider (ASP) that will provide them with a periodic income for life². However, some subscribers may not want to withdraw the entire lump sum amount at once, as it may have tax implications or may not suit their financial needs. To address this issue, the PFRDA has introduced a new option for NPS subscribers called the Systematic Lump Sum Withdrawal (SLW) facility³.
The SLW facility is similar to the Systematic Withdrawal Plan (SWP) under Mutual Funds, where investors can withdraw a fixed amount or a fixed percentage from their investment at regular intervals. The SLW facility allows NPS subscribers who have attained 60 years of age to withdraw their lump sum amount in a staggered manner over a period of 10 years, instead of withdrawing it in one go. The SLW facility will be available to subscribers who have opted for the Life Cycle Fund or the Aggressive Life Cycle Fund as their investment choice³.
Benefits of the SLW Facility
The SLW facility offers several benefits to NPS subscribers, such as:
– It provides flexibility and convenience to subscribers who may not need or want to withdraw the entire lump sum amount at once.
– It helps in tax planning, as the withdrawals are spread over multiple financial years and may fall under different tax slabs.
– It enhances the post-retirement income of subscribers, as they can receive both the annuity payments and the SLW payments at regular intervals.
– It reduces the risk of mismanagement or misuse of the lump sum amount, as it is withdrawn in smaller amounts over a longer period.
– It allows subscribers to benefit from the potential growth of their NPS corpus, as it remains invested in the scheme until it is withdrawn³⁴.
Conclusion
The NPS is a popular pension scheme that offers various benefits to subscribers, such as investment options, tax benefits, and flexibility. The new SLW facility is another feature that adds value to the NPS and makes it more attractive for subscribers who want to withdraw their lump sum amount in a systematic manner. The SLW facility will help subscribers in managing their finances better and ensuring a steady income stream in their old age.
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