The National Pension System (NPS), a favored retirement planning tool in India, has introduced a new feature—Systematic Lumpsum Withdrawal (SLW)—designed to provide retirees with regular, tax-free income. This addition allows retirees to systematically withdraw 60% of their corpus between the ages of 60 and 75, offering enhanced financial flexibility and stability.
SLW complements the mandatory annuity purchase with 40% of the corpus, which provides a fixed monthly income but is subject to taxation. The new facility ensures retirees have an additional, tax-free income stream to manage expenses effectively.
What Is Systematic Lumpsum Withdrawal (SLW)?
SLW allows NPS subscribers to withdraw the 60% of their accumulated corpus not allocated to an annuity in regular installments rather than a lump sum. This facility offers retirees better control over their finances while ensuring their funds continue to grow.
The systematic withdrawal ensures retirees can address financial needs over time without depleting their corpus, maintaining liquidity and increasing investment returns.
Benefits of NPS Systematic Withdrawal
1. Tax-Free Income
One of the biggest advantages of SLW is that withdrawals from the 60% corpus are completely tax-free. This is a significant relief for retirees, enabling them to maximize their retirement savings.
2. Enhanced Flexibility
SLW offers retirees the choice to decide the withdrawal frequency and amount based on their financial needs. This ensures better budget management and caters to varying expense patterns post-retirement.
3. Corpus Growth Opportunity
As the unwithdrawn portion of the corpus remains invested, retirees can benefit from market-linked returns. This helps the corpus grow further, providing an edge over lump-sum withdrawals.
4. Complement to Annuity Income
While annuity ensures a steady income stream, it is often insufficient to meet all expenses. SLW acts as an additional financial cushion, offering a dual-income source for retirees.
5. Low-Cost Investment Option
NPS is known for its low expense ratio, which enhances the overall growth of investments over time. SLW leverages this advantage, making it a cost-effective retirement solution.
Eligibility Criteria for SLW
To avail of the SLW facility, subscribers must meet the following conditions:
- Post-Maturity Only: SLW is applicable only for regular withdrawals post-maturity. It cannot be utilized for premature withdrawals.
- Exclusion in Case of Death: If the subscriber passes away, the facility is unavailable. The entire corpus is transferred to the nominee or legal heir.
- Annuity Allocation Mandatory: The remaining 40% of the corpus must be invested in an annuity plan. SLW is applicable only to the 60% portion.
Activating Systematic Withdrawal in NPS
Activating SLW in your NPS account involves the following steps:
- Log In to Your NPS Account
Access your account via the NPS portal. - Navigate to the Withdrawal Section
Select the “Exit from NPS” option and click on “Initiate Request” under the “Continuation and Withdrawal” menu. - Verify Details
Provide and verify your email, mobile number, and bank account information. - Choose Your SLW Option
- Age-Based SLW: Select a predetermined withdrawal frequency and amount calculated automatically.
- Installment-Based SLW: Specify the withdrawal amount and frequency to calculate the duration of withdrawals.
- Authenticate and Confirm
Complete the verification process to activate SLW and receive the acknowledgment receipt.
Processing Time
The activation of SLW takes approximately five working days.
Modifications
Subscribers can modify or cancel the SLW after activation.
Note: The steps mentioned are specific to NSDL. For subscribers using other service providers like CAMS or KFintech, the process may vary slightly.
Key Considerations for SLW
- No Further Investments: Once SLW is activated, no new contributions can be made to the NPS account.
- No Partial Withdrawals: Additional partial withdrawals outside the SLW schedule are not permitted.
- Long-Term Planning: SLW offers flexibility but requires careful planning to ensure funds last throughout retirement.
Who Benefits Most from SLW?
The SLW facility is particularly beneficial for retirees seeking a tax-efficient income source. It ensures liquidity, better returns, and financial stability.
Compared to traditional mutual funds or fixed deposits, NPS’s low-cost structure and systematic withdrawal options make it an attractive choice for long-term retirement planning.
By adopting SLW, retirees can enjoy a steady, tax-free income alongside annuity payouts, ensuring a comfortable and financially secure retirement.
