The Pension Fund Regulatory and Development Authority (PFRDA) has proposed changes to its guidelines to allow Systematic Lumpsum Withdrawal (SLW) for the National Pension System (NPS) subscribers.
PFRDA has put forward a "smart withdrawal facility," which allows an NPS subscriber to withdraw the amount either monthly, quarterly, half-yearly, or annually for up to 75 years. This facility can be availed of upon a one-time request through online or offline mode.
Currently, the amount can be withdrawn in a single tranche or on an annual basis, with the option to defer the withdrawal in any combination post 60 years or superannuation till 75 years. Moreover, the subscriber must initiate the withdrawal request each time if withdrawn annually.
In a circular on September 29, PFRDA said the changes aim to make the SLW process effortless. It also called for public feedback on its proposed changes by October 19, 2022.
Since the withdrawal module of the Central Record Keeping Agency (CRA) System is already integrated with the subscribers' bank details, SLW can be easily availed of upon requests, it noted. The changes have been proposed for both Tier I & Tier II NPS accounts.
However, after placing an SLW request, subscribers can't make further contributions to the Tier I account. Instead, the amount would be earmarked for annuity and lumpsum as per exit regulations. Also, partial withdrawal won't be allowed post setting up of SLW, PFRDA said.
SLW can be availed anytime in the case of Tier-II, even before attaining the age of 60, in line with the scheme's aim of providing a monthly income to the subscriber or his family members.
PFRDA said that with emerging digital payment options, the SLW facility for Tier I and Tier II accounts based on the one-time mandate would enhance subscribers' benefits. Post initiation of SLW, the intermediary charges would be borne by the subscribers at applicable rates.
How the Systematic Lumpsum Withdrawal (LSW) System Works
Subscribers have various options such as one-time lump sum withdrawal, deferment, continuation, etc. PFRDA noted that the "choice of SLW at periodical intervals through automation would add flexibility, provide liquidity, and optimize the retirement benefits."
It will also allow subscribers to reap market-linked investment gains from the remaining invested amount with the Permanent Retirement Account Number or PRAN.
Process Flow For SLW As Per PFRDA
- The facility is allowed as an option during superannuation and premature exit requests. Exit due to death of NPS subscriber will not have the option of SLW.
- The facility will replace the existing phase withdrawal.
- At the time of exit, subscribers will provide a percentage towards lumpsum and annuity by selecting Annuity Service Provider (ASP) for receiving an annuity.
- SLW will be applicable only for the lump sum portion. Subscribers can either opt for annuity immediately or defer pension till 75 years.
- In postponement, equivalent annuity units/amounts will be blocked until the deferment period. Subsequently, the identical units will be redeemed, and the amount will be transferred to the concerned annuity service providers.
- If the subscriber opts for immediate lumpsum withdrawal, the existing process will remain the same. If the subscriber opts for SLW, then the subscriber will be guided through the e-mandate creation process.
- Subscribers will get a subscriber login with eSign or dual factor OTP authentication as a separate functionality, and no nodal office authorisation is envisaged.
- The login will provide a facility to 'modify' and 'cancel & redeem' SLW.
- In case of cancellation, SLW will get cancelled, redemption will be processed for all available units, and withdrawal proceeds will be transferred to the account.
- For SLW mandate creation, subscribers must select the frequency: monthly, quarterly, half-yearly and annual, amount/units, start and end date.
- If the subscriber keeps the 'end date' blank, SLW will be triggered at a predefined frequency until the corpus is available/ Tier is active or till 75 years of age.
- After attaining 75 years, units available will be redeemed, and the balance will be transferred to the subscribers' bank account.