In a move to increase penetration of national pension system (NPS), PFRDA has proposed to allow partial withdrawal of up to 25% from the accumulated corpus of NPS account. However, NPS subscribers can only withdraw for higher education or marriage of their children, construction or purchase of first house and treatment of specific ailments like cancer, kidney failure, paralysis etc.
In its draft exposure report, the PFRDA has proposed to put a limit of three withdrawals in a gap of five years. However, there is no such limit if withdrawal is made for illness. PFRDA has proposed that the withdrawal should allowed for those NPS subscribers having contribution in account for at least 10 years.
As of now, NPS has three exit options. Firstly, exit from NPS after attaining normal superannuation or 60 years provides 60% of accumulated corpus as a lump sum payment and annuitize the rest for monthly payout. Similarly, if a subscriber exits before attaining the age of 60 years, 80% of accumulated corpus is annuitized. In case of death, the entire accumulated corpus is paid to the nominee or legal heir of the subscriber.
With the proposed guidelines, NPS subscribers will get to withdraw some portion of accumulated corpus without triggering an exit option. A senior official from a pension fund house stuck an optimistic note and says that the move will attract new investors into NPS. “In India, people usually start late to invest for their retirement due to other liabilities like child education, house etc. The move may encourage people to invest in NPS due to added benefit of liquidity.”
Currently, EPFO allows partial withdrawal from its account. However, there is no such limit on withdrawal which led to heavy withdrawals. As a result, many subscribers have only a small corpus left for their post-retirement days.
Vishal Dhawan of Plan Ahead Wealth Advisors says that the pension fund regulator has put a limit of 25% of total corpus for three times which is not the case with EPFO. This will ensure that subscribers do not end up with a small corpus in their post-retirement phase.
However, some financial advisors have a different view. MS Shabbir, a Hyderabad based financial adviser, feels that allowing partial withdrawal in retirement products may eat up benefits of wealth appreciation from accumulated corpus. “Ultimately, NPS is meant for retirement savings. If such facility is allowed, the basic idea of building a wealth for post-retirement life would lost.”
The pension fund regulator has sought feedback on this exposure draft till February 15, 2014.
