Partial withdrawals are currently not allowed under the NPS and a subscriber has to completely exit from the scheme subject to certain conditions on the utilization of the amount.
New Delhi: To make the national pension system (NPS) more attractive, the Pension Fund Regulatory and Development Authority (PFRDA) has published draft rules that will, if implemented, allow subscribers to withdraw funds partially to meet major expenses such as those related to treatment of certain diseases and education.
Under the proposed guidelines, a subscriber can withdraw as much as 25% of the accumulated funds for marriage of children, purchase of property, higher education and treatment of ailments such as cancer and paralysis.
Partial withdrawals are currently not allowed under the scheme and a subscriber has to completely exit from the scheme subject to certain conditions on the utilization of the amount.
PFRDA administers the NPS for Union and state government employees and the unorganized sector.
The move will make the pension scheme attractive vis-a-vis insurance and the employee provident fund (EPF), where partial withdrawals are possible. The pension scheme for unorganized sector has failed to gain popularity since its launch in May 2009.
The approval of the PFRDA Bill last year by Parliament has paved the way for the restructuring of some of the features of the NPS to make it more attractive. The PFRDA Act, 2013, provides for partial withdrawals, not exceeding 25% of the contribution made by the subscriber.
“This flexibility is positive and will help in increasing the popularity of this scheme,” said Suresh Sadagopan, a certified financial planner at Ladder7 Financial Advisory, a Mumbai-based financial planning firm. “The fact that PFRDA has restricted the withdrawal to 25% of the accumulated amount is also good. Ultimately, it is a scheme meant for retirement savings. If higher withdrawals would have been permitted, the situation would have been a repeat of EPF, where more than 80% of the accounts have less than Rs.20,000 in them.”
The new law also gives the pensions regulator statutory and punitive powers, similar to that of the Securities and Exchange Board of India, the Reserve Bank of India and the Insurance Regulatory and Development Authority.
The government is in the process of revamping the pension fund regulator. It is also shortlisting candidates for the post of the chairman of the pension fund regulator and for the posts of three whole-time members. In November, Yogesh Agarwal, chairman of PFRDA, resigned after being prodded by the finance ministry to quit.
Under the proposed draft guidelines, the subscriber should be in NPS for at least 10 years and regularly contribute to the scheme. Also, the subscriber will only be allowed to withdraw for a maximum of three times and that too with a gap of five years between two withdrawals. However, in case of illnesses, the mandatory gap between withdrawals will not apply.
“We are proposing the above frequency in order to make sure that the subscriber should be left with a decent and considerable accumulated pension wealth at the time of superannuation/age of 60 years enabling him to purchase sustainable annuity,” PFRDA said.
According to the current rules, a subscriber can exit the NPS on retirement or on attaining 60 years. In this case, at least 40% of the accumulated funds have to be mandatorily used to purchase an annuity with the balance paid as a lump sum amount. In case the exit is before retirement or before 60 years of age, at least 80% of the funds have to be used for purchase of an annuity and only the balance is paid as a lump sum.
