No annuity rider, NPS subscribers get ₹5 lakh exit option

The National Pension System (NPS) will now not compel buyers to transform 40% of their accrued retirement corpus into an annuity, as poor yields on annuities and excessive inflation are translating into unfavorable returns, the Pension Fund Regulatory and Development Authority (PFRDA) Chairman, Supratim Bandyopadhyay, stated on Thursday.

The regulator will concern recent guidelines to quickly permit these saving as much as ₹5 lakh within the NPS to take the entire quantity at retirement, up from ₹2 lakh at current. The pension fund regulator can also be hoping to launch the primary assured return NPS scheme within the coming 12 months.

Separately, amendments can be made to the PFRDA Act of 2013 to permit NPS members with a stability over ₹5 lakh to retain 40% of the corpus within the NPS or wind it down over a couple of years by a system akin to a scientific withdrawal plan.

“Post-retirement, a person has to take 40% of the total corpus as an annuity as per the law’s mandate, and 60% can be commuted and taken as a lump sum. But the annuity rates always track the interest rates in the market which have come down drastically. So much so, if someone opts for a lifetime annuity at retirement with a return of purchase price to the nominee when the person dies, the rates are varying between 5% and 5.5%,” he identified.

Tax, inflation hits

Since annuities are taxable, deducting the tax and factoring in inflation means annuities are yielding unfavorable returns. “A lot of people are complaining about that. We have thought of giving them one more choice of retaining the 40% with our pension fund managers, and giving them a better return,” he stated, suggesting a scientific payout scheme might be supplied to them over 15 years as an alternative of an annuity.

The Finance Ministry has introduced plans to amend the PFRDA regulation since Budget 2019-20 and to make legislative adjustments to override the statutory annuitisation provision.

The want to boost the lump sum withdrawal bar from ₹2 lakh to ₹5 lakh, Mr. Bandyopadhyay stated, was additionally pushed by the paltry annuity returns.

“Suppose somebody reaches ₹2.1 lakh at retirement, he will get an annuity component of ₹84,000 which today will fetch an income of ₹400 or ₹450 a month — a pittance,” the PFRDA chief stated.