New NPS Rules Soon? PFRDA Chairman Discusses Mandatory 40% Annuity, Bats For Variable Product To Counter Inflation – News18
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With increasing number of subscribers superannuating from NPS in the coming years, there is lot of opportunity in the NPS annuity segment. It is reasonable to expect the actuaries to design innovative products, says PFRDA Chairman Deepak Mohanty.
Under the NPS scheme, the retiree must purchase annuity plan with 40 per cent of their corpus, while the remaining 60 per cent tax-free amount is paid as a lumpsum amount to the retiree.
The National Pension System (NPS) is a market-linked retirement plan available for both private and government sector employees. Under the scheme, the retiree must purchase annuity plan with 40 per cent of their corpus, while the remaining 60 per cent tax-free amount is paid as a lumpsum amount to the retiree. PFRDA Chairman Deepak Mohanty has discussed this and acknowledged that the recurring concern regarding the NPS is unattractive annuity rates and the actuaries should design innovative products, particularly variable annuity that provides hedge against inflation risk.
“A recurring concern regarding the NPS is the unattractive annuity rates provided at the time of retirement. On exit, an NPS subscriber has necessity to annuitise at least 40 percent of her corpus,” Mohanty said while speaking at the Global Conference of Actuaries in Mumbai on Tuesday, March 18, 2025.
Discussing solutions to address the “unattractive” feature, he said there is a lot of opportunity in the NPS annuity segment.
“With increasing number of subscribers superannuating from NPS in the coming years, there is lot of opportunity in the NPS annuity segment. It is reasonable to expect the actuaries to design innovative products, particularly variable annuity that provides a hedge against inflation risk,” the PFRDA chairman said.
Taking about the Unified Pension Scheme (UPS), which is going to be implemented on April 1, 2025, Mohanty said this scheme will see major role of actuaries in the periodic assessment of the sustainability of the scheme.
“The NPS for the central government subscribers is morphing into the Unified Pension Scheme (UPS) which is a fully funded defined-contribution (DC) and defined benefit (DB) scheme. In this scheme, the actuaries will have a major role to play in the periodic assessment of the sustainability of the scheme,” he added.
Apart from NPS, the Pension Fund Regulatory and Development Authority will manage the UPS.
What Are NPS Withdrawal Rules?
An NPS subscriber will have three withdrawal options — partial withdrawal, premature withdrawal, and normal withdrawal.
Partial Withdrawal: After completion of 3 years, subscriber can withdraw 25% of his/her own contributions for specific reasons viz illness, disability, education or marriage of children, purchasing property, starting a new venture. A subscriber can partially withdraw upto a maximum of 3 times during his/her entire tenure in NPS.
Premature Withdrawal: after completion of 5 years or before completion of 3 years (if subscriber joined NPS after attaining 60 years of age), subscriber can withdraw maximum 20% of the corpus as lumpsum and minimum 80% of the corpus has to be utilised for purchasing an annuity plan for receiving the pension. If the accumulated corpus is less than Rs 2.5 lakh, the entire corpus is paid as lumpsum to the subscriber.
Normal Withdrawal: On completion of 60 years of age (if subscriber has joined NPS before 60 years of age) or after completion of 03 years (if subscriber has joined NPS after 60 years of age), subscriber can withdraw maximum 60% of the corpus as lumpsum and minimum 40% of the corpus has to be utilised for purchasing an annuity plan for receiving the pension. If the accumulated corpus is less than Rs 5 lakhs, the entire corpus is paid as lumpsum to the subscriber.
Introduced by the Pension Fund Regulatory and Development Authority (PFRDA) in 2004, the NPS replaced the Old Pension Scheme (OPS) for government employees.
