A partial
withdrawal of up to 25% from accumulated corpus is proposed to be allowed by
PFRDA.
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.
Source: Team Cafe Mutual
