NPS Pension Rules: Change in NPS pension rules proposed by PFRDA: How subscribers could gain

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The Pension Fund Regulatory and Development Authority (PFRDA) has held discussions with the Insurance Regulatory and Development Authority of India (IRDAI) to allow the National Pension System (NPS) pensioners to port their annuity plans. If the proposal goes through, the insurance regulator would allow the NPS pensioners to change their pension policies. This would mean that if an NPS pensioner is not happy with the current annuity rate offered by the pension providing insurance company, then she would be allowed to switch to another annuity plan by a different life insurance company.

“We have held discussions with IRDAI and also with the service providers to allow portability. It is in a preliminary stage of discussion,” PFRDA chairperson Supratim Bandyopadhyay said, news agency PTI reported.

It may be noted that porting of health insurance policies was allowed some years ago by the IRDAI.

Also read:
NPS Calculator: How much to invest to get Rs 75,000 pension per month after retirement

To understand how this proposal may impact, the NPS subscribers need to know the existing rules.


NPS Withdrawal Rule:
Currently, it is mandatory for a subscriber to use at least 40 per cent of the accumulated NPS corpus to purchase an annuity (pension plan) at the time of maturity. The remaining 60 per cent of the corpus can be withdrawn as lump sum. If the total corpus is less than or equal to Rs 5 lakh, the subscriber will have an option of complete lump sum withdrawal at maturity.

For premature exit before the age of 60, an NPS subscriber needs to utilize 80 per cent of the total NPS corpus to buy a pension plan (annuity) from a life insurance company. Only 20 per cent of the total fund can be withdrawn as lump sum. In case of premature withdrawal, if the total corpus is less than or equal to Rs 2.5 lakh at the time of premature withdrawal, the subscriber can withdraw the full amount without investing in an annuity.

How does an annuity plan work for the NPS subscribers?

Simply put, an annuity plan from a life insurance company will provide a regular pension to the subscribers’ post-retirement. . Purchasing an annuity means a subscriber invests the money with an insurance company and in return, the insurer pays a certain amount at a specified frequency as a pension. The periodicity of the pension that will be paid depends on the option chosen by her at the time of buying an annuity plan i.e. monthly, quarterly, annually etc.

What are the options to buy an annuity?
An NPS subscriber can buy annuity plans only through one of the 14 insurance companies empanelled with the PFRDA. The list includes Life Insurance Corporation of India (LIC), SBI Life Insurance, HDFC Life Insurance, etc.

What is PFRDA proposing?



“The problem is once the annuity product is selected, it cannot be changed anymore except till the initial cooling-off period of 15-20 days. But it is found that many subscribers decide in a hurry and realise afterward that another option was better and wish to rectify,” said PFRDA chairperson, as per PTI report.

At present, can an NPS subscriber change current annuity plan?

Currently, an NPS subscriber does not have an option to change the annuity plan, once it is purchased.

How it may impact NPS subscribers
At present, the interest rate on annuities varies from 5.39 per cent to 6.81 per cent. With the portability option, the pensioners will have a chance to shift the annuity plan to a different pension provider to get a higher return. However, as the proposal is still at discussion stage it is not clear as to how the porting of the annuity plans will work.



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