Unlocking retirement prosperity: How NPS remains cutting-edge

livemint.com:

₹10 trillion. The most prominent reason for its increased awareness and popularity is the consistency in investment returns and cost-effectiveness. The NPS has consistently delivered superior returns compared to alternative products and inflation, with equity schemes generating approximately 12.8% per annum and debt schemes around 9% per annum over the last 10 years.

This can be compared with current interest rates of EPF at 8.15%, PPF at 7.1%, and various small saving schemes ranging from 6.7% and 7.7%. It is worth noting that NPS continues to evolve and improve through subscriber-friendly measures introduced by the Pension Fund Regulatory and Development Authority (PFRDA). Systematic lump sum withdrawal: The PFRDA recently introduced systematic lump sum withdrawal (SLW) which is a case in point.

Under the SLW mechanism, the 60% tax-free lump-sum portion of the maturity corpus can be withdrawn in monthly, quarterly, half-yearly or annual instalments for the period between retirement and attaining the age of 75 years. This allows the corpus to remain invested and grow. It also reduces the risk that the corpus may be prematurely exhausted after a lumpsum withdrawal.

Moreover, it enables the subscriber to postpone purchasing an annuity from the remaining 40% of the corpus, which means that the subscriber will get a better annuity rate, as annuity rates increase with the age of the subscriber. Annuity is an essential feature of a pension product, as a lifetime annuity transfers the longevity risk to the insurance company. Other recent improvements made in the past include increasing the entry age to 70 years, allowing 100% equity in tier II account, liberalising scheme preference change and premature exit, etc.