Mumbai: The Systematic return scheme has been introduced under National Pension System (NPS) provides its own placement facility to retirees. Retirement Corps and manage their funds in a cost-effective manner.
NPS has already demonstrated its ability to outperform retirement funds in terms of returns. Earlier, a subscriber, on exiting NPS, did not have the option to systematically withdraw 60% of the corpus after buying an annuity with 40%.
With the introduction of the managed lumpsum return feature, one can choose to invest in NPS with 60% of the corpus and activate the SLW feature as long as the corpus continues to grow.
“The NPS product now allows you to keep the account alive and continue to contribute and enjoy corpus growth till the age of 75. The product matures at the age of 75 – at which point one must has to opt out of the scheme. At this age, an individual can potentially enjoy a higher annual rate while availing the remaining 60% as tax-free lumpsum,” Sri. Ram Iyer, C EO said. of HDFC Pension Management.
A systematic withdrawal scheme enables investors to withdraw a fixed amount in installments for post-retirement expenses, while deferring their annuity to get better monthly returns. “Unlike life insurance, which becomes more expensive with age, guaranteed annuities become more attractive with higher rates at older ages.”
This facility works well for individuals who have built a large corpus under Voluntary Pension Contribution. “In the higher net worth category, people tend to delay withdrawals. They may not need the cash flow, or they may be looking for better returns. Annuity rates also increase with age. It’s better to annuitize at age 60 because they need the income,” Iyer said.
On taxation, Sriram notes that interpretations vary. One view is that the benefit portion of the withdrawal can be taxed like mutual funds, while another suggests that a 60% tax-free corpus can also allow for tax-free systematic withdrawals.
For those who save for retirement and are unsure about liquidity requirements, the Tier-II scheme of NPS offers a good option.