National Pension System (NPS) Withdrawal Rules

National Pension System (NPS) Withdrawal Rules

Prelims:

Economy, Government Schemes

Mains:

GS Paper II-Governance, GS Paper III-Economy

Current relevance:

         The Pension Fund Regulatory and Development Authority (PFRDA) has introduced new National Pension System (NPS) withdrawal norms.

Highlights:

1.      The National Pension System (NPS) is a voluntary, market-linked retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
2.      Aim: To provide financial security and a regular income after retirement.
3.      Key Changes:
                    i.            The mandatory annuity purchase has been reduced from 40% to 20% of the retirement corpus.
                  ii.            Subscribers can now withdraw up to 80% of the corpus as a lump sum, compared to 60% earlier.
                iii.            Revised withdrawal norms provide greater flexibility based on the size of the accumulated corpus.
4.      Retirement Income Scheme (RIS):
           It allows subscribers to receive periodic withdrawals while keeping the remaining corpus invested, enabling market-linked returns and a regular post-retirement income.
Types of RIS:
        i.            Systematic Lump Sum Withdrawal (SLW): Provides fixed periodic withdrawals at monthly, quarterly, half-yearly, or annual intervals.
      ii.            Systematic Unit Redemption (SUR): Allows redemption of a fixed number of units, with payouts varying according to the Net Asset Value (NAV).
5.      Tax Implications:
                    i.            Under Section 10(12A) of the Income Tax Act, only 60% of the withdrawn corpus remains tax-exempt.
                  ii.            The additional 20% lump sum withdrawal permitted under the new rules is taxable. 
Source: THE HINDU - https://www.thehindu.com/business/what-new-nps-withdrawal-rules-mean-for-retirement/article71185706.ece