No Annuity rider for NPS withdrawals upto ₹5 lakh: PFRDA

K.R.Srivats Updated on June 15, 2021

Pension regulator also revises upwards premature withdrawal limit to ₹2.5 lakhs

Pension regulator PFRDA has allowed National Pension System (NPS) subscribers with savings of upto ₹5 lakhs in NPS to take the entire amount at retirement without mandating any investment in annuity.

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Hitherto, this facility (without annuity rider) was available only for withdrawal of NPS corpus or savings upto ₹2 lakh at the time of retirement.

Simultaneously, the Pension Fund Regulatory and Development Authority (PFRDA) has also raised the premature withdrawal limit on a lumpsum basis for NPS to ₹2.5 lakh from ₹1 lakh earlier, Supratim Bandyopadhyay, Chairman, PFRDA told BusinessLine.

An NPS subscriber can now prematurely withdraw and get a lumpsum of ₹2.5 lakh before reaching the age of 60.

PFRDA has also now extended the maximum entry age for availing NPS benefit to 70 years from the current 65 years. The exit age limit has also been extended from 70 years to 75 years. Prior to this change, Indians between the age bracket of 18-65 years can open an NPS account.

PFRDA’s move to allow NPS corpus of upto ₹5 lakhs to be entirely withdrawn at retirement comes in the wake of low annuity rates in the system.

Currently, the regulatory norms require a person on retirement to invest at least 40 per cent of the retirement funds in annuities. Now with annuities — which tend to mirror interest rate movements in the system — having hit a bottom with falling interest, the regulator has enhanced the limit to ₹5 lakh.

PFRDA Chairman clarified that the facility of entire withdrawal has been made available only for corpus upto ₹5 lakh and if the corpus were to be, say ₹5.01 lakh, the NPS subscriber will have to buy annuities for ₹2 lakh (40 per cent).

“This is the new annuity rule and if corpus amount exceeds ₹5 lakh, you will have to take annuity and be bound by the rule,” he said.

The main reason for increasing the limit to ₹5 lakhs is that the absolute return of annuity is “too low”, and this was the driving force. Even in Atal Pension Yojana, the minimum pension guaranteed is ₹1 lakh, he pointed out.

When asked about how many NPS subscribers can potentially benefit from the latest rule change, Bandyopadhyay said that “large numbers” would benefit, especially those who had opted to keep the monies with PFRDA and not withdrawn it.

“We had analysed why several people had not chosen annuity and allowed the NPS corpus to remain with PFRDA. We had found that lot of them had realised that annuity that they get will be a paltry sum and will not meet their requirements. So they thought that it is better to keep the monies with PFRDA and then it can be seen,” he said.

India’s pension assets under management (AUM) had crossed the ₹6 lakh crore mark in May. PFRDA is now looking at an AUM target of ₹7.5 lakh crore by end March 2022.

Published on June 15, 2021
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