The low-cost National Pension System (NPS) will soon have a new feature of Systematic Withdrawal Plans, adding to the sheen of the popular retirement planning product, said PFRDA Chairman Deepak Mohanty. This new feature will give flexibility to NPS subscribers to opt for the facility of systematic withdrawal post retirement of subscribers at monthly, quarterly, half yearly and annual rests, Mohanty told businessline.
This flexibility is essentially targeted at non-government sector subscribers — corporate and all citizens model categories — the growth driver for NPS assets last fiscal. The upcoming feature is also significant, given the perceived low annuity returns in the Indian financial system.
In FY23, as many as million new subscribers came to the NPS fold from the non-government sector. “In this fiscal (2023-24), we expect this to increase to 13 lakh new subscribers,” Mohanty added.
Mohanty, who assumed charge at the helm of PFRDA in mid-March this year, said the rollout of this systematic withdrawal feature will happen this year. Indications are that it would be a reality in third quarter this calendar year.
“The CRAs (central record keeping agencies) are working on this,” said Mohanty.
PFRDA is looking to allow systematic withdrawal in terms of either units or in the form of periodic lumpsum amount, depending on the subscriber’s choice.
At present, under NPS, a subscriber has to, on retirement, invest at least 40 per cent of the accumulated corpus in annuities. The remaining 60 percent can be withdrawn for any of his end use purposes, including investments in other assets.
Now, the PFRDA is planning to give the subscriber flexibility to leave the residual amount (other than 40 per cent that goes for annuities) within the NPS system, and avail pension at monthly, quarterly, semi-annual or annual rests till the age of 75, Mohanty explained.
“So, from 60 years [on retirement] till 75 years you as NPS subscriber can remain within NPS system and avail monthly, quarterly, semi-annual or yearly systematic withdrawal. Either you can take your 60 per cent at one go when you retire at 60 years or stretch it over next 15 years till you turn 75 years. You get higher return and redeem as you go,” said Mohanty.
He also said that PFRDA Board has already given its nod for introducing this flexibility to NPS subscribers.
Another interesting aspect of this systematic withdrawal plan is that it would serve as a competing product to the annuities, said Mohanty. NPS subscribers would now compare the returns through this facility with those for annuities and accordingly decide if they should raise the proportion of annuity investments beyond the statutory defined 40 percent or not. Currently, NPS subscribers can even park the entire retirement corpus in annuities on retirement.
AUM milestone
Mohanty said that NPS assets have touched about ₹9.2 lakh crore and well on course to touch a milestone level of ₹ 10 lakh crore by September end.
He also felt that the introduction of new tax regime (which is neutral to all savings instruments) was not going to be dampener for NPS demand. “ I think the hiccups we saw in the last two months of March quarter will soon be ironed out and we will return to previous growth trajectory. People should choose NPS after all things considered including the returns,” Mohanty added.
RRB push
Mohanty said PFRDA will this year focus energies on distributing NPS through Regional Rural Banks. “We will engage with sponsor banks and induce RRBs to offer NPS. This has been an untapped segment for us,” he said.
Asked about interest rate movements in the system and its impact on NPS assets growth, Mohanty highlighted that 10-year G-sec yield has softened after the RBI’s rate pause in its recent monetary policy and trading in the range of 7.11-7.27 per cent.
With NPS assets being marked to market and debt instruments comprising 84 per cent of investments, a falling interest scenario supplements growth of overall AUM, he noted.