PFRDA introduces reforms for NPS withdrawals

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced significant reforms to the National Pension Scheme (NPS) withdrawal process, offering a more appealing investment proposition to subscribers.

Tax-efficient staggered withdrawals
In a recent announcement, the pension regulator has given the green light for NPS subscribers to withdraw up to 60 per cent of their pension corpus through the systematic lump sum withdrawal (SLW) facility. Subscribers can choose to undertake phased withdrawals on a monthly, quarterly, half-yearly, or annual basis, all the way up to the age of 75.

Presently, NPS subscribers could withdraw 60 per cent of their total corpus only as a lump sum after turning 60, with the remaining 40 per cent directed towards purchasing an annuity.

However, the PFRDA's latest changes empower subscribers to initiate withdrawals in a phased manner at the age of 60 while the annuity purchase can be deferred until they reach 75.

This great initiative ensures that subscribers don't have to withdraw the entire 60 per cent of their tax-free proceeds all at once. Instead, they can opt for staggered withdrawals over a desired period.

Active investment choice and portfolio rebalancing
NPS's 'active investment choice' grants subscribers the freedom to customise their asset allocation, which can be adjusted up to four times a year at no extra cost.

Furthermore, NPS offers automatic annual portfolio rebalancing, which does not attract any capital gains tax, which one might have to incur otherwise if they maintain a separate debt or equity portfolio.

Tailored income generation
With these reforms, subscribers can easily tailor their asset allocation to meet their specific needs and establish an annual withdrawal or any other periodic interval, effectively leveraging their entire corpus to generate a regular income stream through NPS at a very low cost.

Check your NPS fund performance here.