What Is A Systematic Lumpsum Withdrawal (SLW)? Should You Opt For It?

In a recent update to the National Pension System (NPS) withdrawal rules, the Pension Fund Regulatory and Development Authority (PFRDA) has approved automatic periodic withdrawals from the NPS subscribers' corpus fund. According to the circular dated October 27, 2023, the PFRDA stated, "In line with Regulation 3 and Regulation 4 of PFRDA (exits and withdrawals under the NPS) Regulations, 2015, and amendments thereto, the proposal includes the introduction of the Systematic Lumpsum Withdrawal (SLW) facility, allowing phased withdrawal of the lump sum." 

NPS subscribers can withdraw up to 60 percent of their pension savings using SLW, choosing a monthly, quarterly, half-yearly, or annual schedule until the age of 75, as selected during their regular exit process. 

What Is SLW: Systematic Lumpsum Withdrawal, similar to the Systematic Withdrawal Plan (SWP) in Mutual Funds (MFs), allows NPS subscribers to withdraw their chosen amount at regular intervals systematically.  

How SLW Works: The Systematic Lumpsum Withdrawal is similar to the SWP under MFs. Subscribers to NPS can withdraw funds through the SLW facility in a systematic manner at equal intervals of time. From age 60 to 75, subscribers must allocate at least 40 percent of their corpus to purchase an annuity, which provides periodic payments. The rest of the corpus can be withdrawn as a lump sum or systematically through SLW, offering retirees a steady income for post-retirement expenses. Subscribers can select this withdrawal method once, and payments will follow their chosen schedule. 

Says Amit Gupta, Managing Director at SAG Infotech, "The payments are made according to the annuity's terms. The balance of the corpus may be liquidated as a lump amount, or it can be drawn through the SLW method. The periodic cash flows received by retirees under SLW increase their post-retirement income as well as cover routine expenditures. The subscriber may withdraw once, which can be done through his payment preference."  

"Hence, SLW becomes an investment opportunity for retired people seeking reliable earnings to support their livelihoods after leaving employment. Once a subscriber leaves the job and applies for the lump sum of the NPS annuity, it can be requested. The NPS is a government-sponsored program that the PFRDA controls. An NPS subscriber is exposed to the capital market (equity, govt securities, corporate bonds, and alternative assets) to the degree of risk he/she is willing to take, and builds up his/her retirement corpus accordingly," says Gupta.  

SLW Makes NPS More Appealing To Subscribers: Offering subscribers the option to withdraw their funds systematically adds appeal to the NPS scheme. This flexibility allows subscribers to decide when and how much to withdraw, avoiding the commitment of an annuity throughout the entire post-retirement period. This withdrawal flexibility can be utilized to address specific needs, especially situations requiring a larger corpus. 

Advantages of NPS SLW: Opting for the SLW Option promotes a disciplined use of retirement savings, takes advantage of rupee-cost averaging, potentially increases the nest egg, and helps combat inflation. This option allows individuals to handle retirement expenses and secure long-term financial well-being effectively.

Subscribers can gain from market-linked investment growth by keeping their money invested in the Permanent Retirement Account Number (PRAN) based on their investment choice without withdrawing. Moreover, the SLW option reduces the risk linked to reinvestment after a one-time lump sum withdrawal. However, throughout this SLW period, subscribers won't be able to contribute (only in Tier 1), and partial withdrawal is also not allowed.

Should You Opt For SLW: According to experts, you could opt for it after assessing your needs, future plans, and way of life. You might see it as a way to create a steady income for budgeting, covering recurring medical costs, expanding investments, and ensuring a comfortable retirement. SLW is suitable for retirees seeking systematic cash flows in their post-retirement phase, helping them manage regular expenses. An added benefit is that NPS members can opt for a consistent cash flow, with SLW requested only once.

Moreover, liquidity is a crucial aspect of any investment, and the ability to withdraw 60 percent of the fund value periodically makes NPS appealing. This feature provides investors with greater flexibility, and considering its strong performance in returns over recent years, it becomes even more attractive. 

Thanks to SLW, retirees can withdraw money gradually until age 75, getting a regular tax-free income. NPS members have more control over their retirement money and can choose when to withdraw funds. This change allows them to tap into their savings bit by bit, letting the rest earn tax-free returns. It improves retirement planning, fixing issues like forced lump sum withdrawal and taxes. NPS is now more flexible, and offers continued tax benefits, making retirement safer for its investors.