Systematic lumpsum withdrawal plan (SLWP) in National Pension System (NPS) enables an investor to withdraw a fixed amount and let the corpus stay invested in market-linked instruments. This allows for compounding to earn higher returns and reduces the risk of reinvestment with single lumpsum withdrawal.
By withdrawing in tranches, an investor reduces the risk of taking out money at a market low and the remaining funds continue to grow in a regulated manner. For instance, out of a total corpus of Rs 1 crore at the age of 60, when 60% of the corpus or Rs 60 lakh is put for SLWP for 10 years, an investor can earn an additional income of Rs 42 lakh by the time he turns 70 (See graphic).
Kurian Jose, chief executive officer, Tata Pension Management, says instead of a single lumpsum withdrawal at 60 years, gradual withdrawal is a smart move. “Continued investment potentially enables the corpus to grow in line with or exceed inflation, helping retirees maintain their purchasing power.”
The SWP will be provided in the subscriber login at the time of retirement. He will have to select the payout frequency (monthly, quarterly, half-yearly or annually) , amount and the start date. The facility to modify, cancel and redeem SWP is provided in the login and subscribers can even modify the mandate. The SLWP will start after 30 days of creation of a mandate in the system. If on the scheduled payout day, sufficient balance is not available in the lump sum category then withdrawal will be executed only for the available amount and all remaining SLWP requests will be auto-cancelled.
Enhanced cash flow
The SLWP is available in both Tier I and Tier II accounts up to the age of 75 years. It will be applicable only for normal exit and not for premature exit or exit due to the death of the subscriber. In case the accumulated corpus is below Rs 5 lakh at the time of maturity, then the subscriber can withdraw the entire corpus.
For annuity (40% of the balance corpus at the time of retirement), an investor has the option to either opt for it immediately at the age of 60 years or defer it till 75. Annuity rates increase with the subscriber’s age as insurers calculate payouts based on the life expectancy.
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