Pension regulator to further sweeten NPS

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The New Pension Scheme (NPS) is expected to have additional features for investment, which will enhance its appeal. As per Deepak Mohanty, the Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), NPS is presently the most cost-effective option for pension investment. The systematic withdrawal facility will be added soon.  It is already available in mutual funds through the systematic withdrawal plan (SWP).

What’s the scheme? Currently, NPS account holders who are 60 years old are allowed to withdraw up to 60% of their total deposited amount, which they could either spend or invest elsewhere as per thier wish. They were required to purchase an annuity with the remaining 40% to receive a pension. However, the new system permits NPS customers to keep their 60% deposit in the NPS account itself, and they will get returns on investment in this as before. Customers can choose to receive a pension through a systematic withdrawal plan on a monthly, quarterly, half-yearly, or annual basis, depending on their needs.

Withdrawals can be made based on the amount or unit redemption, and the investment can be held between the age of 60 to 75. Personal finance expert Jitendra Solanki stated that this scheme appears quite useful in mutual funds. However, there are various rules associated with NPS under SWP, we have to see how long the investment will remain locked. All things considered, this is a good option, he said.

When will it get implemented? Mohanty told Business Line that the PFRA Board has approved the facility of systematic withdrawals for NPS customers. It is expected that this system will be implemented by December this year. An interesting fact about the new initiative of PFRA is that it will work as a competitive product for annuity. NPS customers will be able to compare the returns of this facility with the returns of annuity.

Based on this calculation, they will decide whether they need to increase their amount in annuity by more than 40%. Currently, NPS customers can keep the entire corpus in annuity at the time of retirement. He said that adding new features to NPS will help make this pension scheme popular among non-government employees.

He said that this category had a special contribution to the growth of NPS last year. Considering the estimate of low returns in annuity in the Indian financial system, the new features of NPS will prove to be quite useful for investors. Mohanty said that there are millions of non-governmental customers in NPS in the financial year 2022-23.

He further added, it is expected that in the current financial year 13 lakh new customers can be added. Currently, NPS assets are Rs 9.2 lakh crore. This figure is expected to reach Rs 10 lakh crore by the end of September this year.