The Pension Fund Regulatory and Development Authority (PFRDA) has ushered in a new era of flexibility for National Pension System (NPS) subscribers, particularly those in the corporate sector. Announced on Tuesday, the revised regulations significantly alter the lump sum withdrawal limits at the time of retirement, offering non-government subscribers greater access to their accumulated savings.
Key Changes in Lump Sum Withdrawal Limits
The most substantial shift pertains to the portion of the retirement corpus that can be taken as a lump sum. For non-government subscribers, the permissible lump sum withdrawal has been increased to 80% of the corpus amount that exceeds ₹12 lakh. The remaining 20% must be used to purchase an annuity, which provides a regular pension income.
This marks a significant departure from the previous uniform rule, where both government and non-government subscribers were restricted to withdrawing only 60% of their corpus, with 40% mandated for annuity purchase. Government employees, however, will continue under the old 60:40 framework.
New Corpus-Based Withdrawal Tiers
The notification introduces a tiered system for withdrawals based on the total accumulated corpus:
Corpus of ₹8 lakh or less: Non-government subscribers who have completed 15 years of contributions or have attained 60 years of age (or the age of superannuation) can withdraw the entire corpus if it is ₹8 lakh or less. This provides full liquidity for smaller retirement pots.
Corpus between ₹8 lakh and ₹12 lakh: In this bracket, subscribers can withdraw up to ₹6 lakh as a lump sum. The remaining amount must be directed towards buying an annuity.
Corpus above ₹12 lakh: This is where the new 80:20 rule applies. For example, if a subscriber has a corpus of ₹15 lakh, they can now withdraw ₹12 lakh (80%) and use ₹3 lakh for annuity. Previously, the maximum lump sum withdrawal would have been capped at ₹9 lakh (60%).
Extended Investment Horizon and Exit Rules
In another move aimed at enhancing long-term savings, PFRDA has now allowed subscribers to remain invested in the NPS until the age of 85, unless they choose to exit the scheme earlier. This extension offers more time for the retirement corpus to grow.
A normal exit from the scheme is permitted after 15 years of subscription or upon attaining 60 years of age, superannuation, or retirement, whichever occurs earlier. The regulations also clearly outline the process in case of a subscriber's demise.
If death occurs before the purchase of an annuity or a lump sum withdrawal, the entire accumulated corpus will be paid to the nominee or legal heir. In tragic cases where a subscriber is missing and presumed dead, 20% of the corpus will be paid as interim relief. The balance will be released after a formal determination under the provisions of the Bharatiya Sakshya Adhiniyam, 2023.
These reforms by PFRDA are designed to make the NPS a more attractive and flexible retirement planning tool for India's corporate workforce, aligning withdrawal rules more closely with the evolving needs of subscribers.
