Investing in the National Pension System (NPS) just got even better! Now, employees can continue to earn returns even after they retire, and the best part is, you don’t have to buy an annuity to take advantage of this. NPS has consistently been one of the top options for high returns, and now it includes a systematic withdrawal feature. Previously, subscribers could only choose to take out 60% as a lump sum and buy an annuity with the remaining 40%.
With the new systematic withdrawal option, subscribers can keep 60% of their NPS investment while utilizing the Systematic Lumpsum Withdrawal (SLW) feature, allowing their funds to keep growing. According to Sriram Iyer, CEO of HDFC Pension Management, this updated NPS product lets you keep your account active and continue contributing until you turn 75, which means you can benefit from the growth during that time.
When it matures, you’ll see even higher returns. The product matures at 75, allowing for systematic withdrawals, and you’ll need to exit the scheme after that. This means subscribers can enjoy a higher annuity rate. After 75, you can withdraw 60% as a lump sum and use the remaining 40% to purchase an annuity, which will yield better returns.
Here’s how this plan operates. The Systematic Withdrawal Scheme lets investors take out a set amount in installments for their post-retirement needs while keeping their annuities intact, which helps boost monthly returns. Annuities get more appealing over time since they provide better returns.
This option is great for those who have accumulated a significant amount through voluntary pension contributions. High net worth individuals often prefer to focus on maximizing returns rather than making withdrawals. Plus, annuity rates tend to improve as you age.
There are also tax perks involved. According to the previous NPS rules, 60% of the lump sum withdrawn is exempt from income tax, and the 40% used to purchase an annuity is completely tax-free. Some thought that if the lump sum was held for 75 years, taxes might apply. However, it’s now clear that even with a systematic withdrawal plan, the entire amount remains tax-exempt.
