BackHow SLW will help in NPS withdrawal
Once the SLW option is introduced, subscribers can choose from various options at the time of exit
PremiumThe Pension Fund Regulatory and Development Authority (PFRDA) recently proposed the ‘Systematic Lumpsum Withdrawal (SLW)’ option, allowing National Pension Scheme (NPS) subscribers to withdraw 60% of the corpus periodically from the age of 60.
Subscribers can opt for periodic withdrawal — either monthly, quarterly, half-yearly or annually—till the age of 75 years.
As per existing guidelines, On attaining 60 years of age, the subscribers can withdraw up to 60% of the corpus as lump sum (with a minimum of 40% transferred to annuity). Subscribers, however, do have an option to defer lump sum withdrawal till 75 years. While deferring the lump sum withdrawal, investors also have an option of ‘phased withdrawal’ on annual basis. This way, the subscriber can withdraw partially every year, but a request needs to be submitted by the investor each year separately.
The new proposal allows a one-time mandate for processing the redemption of units and transfer of funds at predefined intervals.
This facility will be provided for both tier-I and tier-II accounts. Unlike tier I, which allows withdrawal only at the time of retirement or in times of exigencies, tier II is a voluntary investment account with no withdrawal restrictions. The SLW option can be initiated for the tier II account even before a subscriber attains the age of 60 years.
Note that the SLW proposal is still under consideration and is not yet effective. Experts believe that this rule provides extra options to investors at the time of exit and makes the NPS retirement product a little less rigid.
Predefined amount
Once the SLW option is introduced, subscribers can choose from various options at the time of exit. That includes one-time lump sum withdrawal, SLW, deferment and continuation.
For SLW, investors need to pre-define the number of units or the amount that has to be paid to them periodically. The balance amount after each payment will remain invested in the NPS account.
The option of selecting SLW will be provided in the central record-keeping agency (CRA) withdrawal module with an eSign or dual-factor OTP (one-time password) authentication to the investor.
If the subscriber wants to change the terms of the SLW option already created, a facility to ‘modify’ and also ‘cancel & redeem’ will be available in the CRA login only.
Experts say that providing more withdrawal options to NPS subscribers will make them feel more comfortable.
Note that the SLW proposal, if introduced as is, will come with two conditions. After opting for SLW, investors will not be able to contribute further to the tier I NPS fund. Further, partial withdrawal won’t be allowed post-setting up of SLW.
“When investing in retirement products, subscribers are more focused on how that money will come back to them after they retire. The more options they have, they can choose the one that works for them at that particular point. It is very hard to figure out today which option will work after many years,“ said Vishal Dhawan, founder & CEO of Plan Ahead Wealth Advisors.
Having said that, the SLW proposal, if introduced as is, will come with two conditions. After opting for SLW, investors will not be able to contribute further to the tier I NPS fund. Further, partial withdrawal won’t be allowed post-setting up of SLW.
Commenting on the rule disallowing partial withdrawal after the SLW option is initiated, Dev Ashish, a Sebi-registered investment advisor, said “after selecting SLW, what if the subscriber needs to access his/her own money, which was earlier available freely without any restriction? This clause doesn’t seem too fair.“
Amol Joshi, founder of Plan Rupee Investment Services, believes that a facility to increase the withdrawal amount each year should also be incorporated in the guidelines to take care of inflation.
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