To protect its investors from market volatility, the Pension Fund Regulatory and Development Authority (PFRDA), in a circular issued on 9 June, stated that the accumulated funds in the National Pension System (NPS) will be monetised automatically if one does not come forward to withdraw and annuitise it in time upon retirement.
According to the regulator, if the withdrawal application is not received at least a month before the date of superannuation or attaining the age of 60 years, the central record keeping agency (CRA) system will automatically initiate a process of monetisation of units held in the account of the subscriber as on the last business day of the month. (Read the circular here: http://bit.ly/1tqbJL4). This will be effective from 1 August 2016.
Industry experts estimate that more than 40,000 accounts are lying unclaimed. This circular aims to protect the subscribers from market volatility.
Exit options
NPS is a defined contribution retirement product that needs you to keep contributing till 60 years of age. The minimum contribution to the scheme is Rs.6,000 a year, and you can choose from three investment funds, namely government securities fund, fixed income instruments other than government securities fund and equity fund. The equity exposure is a maximum of 50%.
NPS has a lock-in till 60 years of age. In the case of corporate NPS-where you contribute through your employer-you can exit at an age that is designated for retirement by the employer.
On exit, you have the following options. You can annuitise the entire amount or a minimum of 40%. An annuity is a retirement product that gives you pension for life. You can also choose to annuitise the minimum mandatory part (which is 40% of the lump sum) and keep the rest invested or contribute further till 70 years of age. In the case of deferment, you could also defer the annuity payments by three years Also, if you do not wish to withdraw this invested lump sum all at once, you can withdraw it in 10 annual instalments till 70 years of age. .
Exit process
The exit process starts six months before the due date and the CRA, which is the National Securities Depository Ltd (NSDL), will notify you. You have to fill up the withdrawal form with the help of your point-of-presence (PoP), a distributor of NPS. The PoP will key in your details, verify your know-your-customer details (KYC) and initiate the withdrawal request in the CRA system online. You can also initiate the withdrawal request online, which will subsequently have to be verified by the PoP.
If CRA does not receive the withdrawal application by the last month before maturity, then on the last working day of the month it will instruct your pension fund manager to monetise the amount held in your account. According to the circular, This money will then move into a separate withdrawal bank account held with the trustee bank, i.e., Axis Bank Ltd, preferably with an auto sweep-in facility and the interest will be credited to the subscribers on an annual basis. According, to PFRDA the modalities are still being worked upon.
"By this the NAV (net asset value) is guarded to the extent possible," said the recent PFRDA circular.
The PoP and subscriber will then be informed, and they will be reminded to claim the money.
"It is true that customers will be protected if markets crash, but at the same time they will also lose if the markets rise. If the idea is to protect the subscribers from market volatility, the money can simply move to the government securities fund instead of monetising it," said Sumit Shukla, chief executive officer, HDFC Pension Management Co. Ltd.
Keep in mind that those who also have a tier-2 account (a liquid account that works more like a savings bank account), then on superannuation or on attaining the age of 60 years, the tier-2 account will cease to exist. Accordingly, that account will also get monetised.
Even when you choose to defer withdrawals or annuitisation, the same rules will hold good. The CRA will inform you six months before the due date and if you do not respond within the time frame, the money gets monetised.
Even as the authorities are trying to put safeguards in place, you should be vigilant and make sure you exercise your retirement options on time.
In arrangement with HT Syndication | MINT
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