Subscribers with accumulated funds of Rs 2 lakh or less may be allowed to withdraw the entire amount on retirement.
The Cabinet may discuss changes in the withdrawal rules for the New Pension Scheme (NPS) on July 11.
The proposal is to permit a subscriber to withdraw his/her entire fund on retirement, if the amount is Rs 2 lakh or lower.
The condition in all such cases would be that a subscriber would have to make a request for an ‘opt-out’ option. At present, over 4,400 accounts have accumulated amounts of Rs 2 lakh or lower. Out of these, nearly 680 have made a request for withdrawal. However, the proposal, once approved, will not apply to accounts opened under the Swavalamban scheme.
Normally, an individual can exit either at or after the age of 60. However, from March 2013, subscribers were allowed to stay invested till the age of 70, but with some conditions, such as no contribution or part withdrawal between the ages of 60 and 70.
At the time of exit, 60 per cent of the total amount is given as lumpsum, while 40 per cent is used to purchase an annuity, which provides lifetime pension to an employee and his dependent parents/spouse at the time of retirement.
The problem being faced was that the accumulated amount was inadequate for pension payouts. “Accumulated funds of less than Rs 2 lakh are not enough to purchase an annuity or annuity providing for decent monthly income,” a senior Government official said.
He said subscribers who have not made a request for withdrawal as lumpsum may like to continue, which is why a specific ‘opt out’ option is being proposed, rather than a default option.
NPS is a contributory scheme, which was made mandatory for Union Government employees (except those joining the Armed Forces) joining on or after January 1, 2004. Under the scheme, an employee contributes 10 per cent of his/her salary and dearness allowance and an equal contribution is made by the Union Government.
However, there is no contribution from the Government in respect of individuals who are not Government employees.
Various States have also introduced NPS for their employees. Currently, there are nearly 27 lakh Central and State Government employees under the NPS. Individuals can also open accounts under the scheme.