National Pension System, NPS Systematic Lump Sum Withdrawal (SLW): National Pension System (NPS) is a prominent retirement scheme where one can contribute to create a retirement corpus.
At the retirement age of 60, they are allowed to withdraw up to 60 per cent of their corpus.
They need to purchase an annuity from the rest of the 40 per cent amount.
The annuity helps them get a monthly pension.
However, an NPS account holder can purchase the annuity from the entire 100 per cent corpus too.
But if they pick the Systematic Lump Sum Withdrawal (SLW) option and delay purchasing an annuity plan, they can not only increase their withdrawal amount substantially but can also help raise their monthly pension amount significantly.
Know more about the SLW option, and through expert calculations, know how one can increase their lump sum amount by 70 per cent, and by delaying their pension till 75, they can increase their monthly pension amount by 22 per cent.
What is SLW?
Systematic lump sum withdrawal (SLWP) in NPS allows an account holder to withdraw up to 60 per cent of their retirement corpus (through NPS) post 60 years of age over time instead of making a lump sum withdrawal at that age.
“The approach balances wealth preservation, market growth potential, and efficient cash flow management,” says Kurian Jose, CEO, Tata Pension Management.
One can withdraw the corpus through SLW till the age of 75 years.
It will not be your only income. You can purchase an annuity plan from the 40 per cent corpus and get monthly income from that also.
However, if you want, you can also defer your annuity purchase till the age of 75.
In that case, your monthly pension may also increase by 20 per cent.
Here, we take you through a case study where we are illustrating the example of a person with a Rs 1 crore corpus who wants to start SLW with 60 per cent of their corpus, i.e., Rs 60 lakh.
See how much extra amount they can withdraw over the years and what will be the remaining corpus after withdrawing that amount.
SLW assumptions
- Total corpus at 60 years: Rs 1 crore
- 60% corpus for systematic withdrawal: Rs 60 lakh
- Asset Allocation: 50% equity (10% growth), 50% debt (6% growth)
- Withdrawals: Rs 6 lakhs annually for 10 years
Calculation of Corpus Growth with Systematic Withdrawals:
Year | Corpus Start (₹) | Growth (₹) | Withdrawal (₹) | Corpus End (₹) |
60 | 60,00,000 | 4,80,000 | 6,00,000 | 58,80,000 |
61 | 58,80,000 | 4,70,400 | 6,00,000 | 57,50,400 |
62 | 57,50,400 | 4,60,032 | 6,00,000 | 56,10,432 |
63 | 56,10,432 | 4,48,834 | 6,00,000 | 54,59,266 |
64 | 54,59,266 | 4,36,741 | 6,00,000 | 52,96,007 |
65 | 52,96,007 | 4,23,681 | 6,00,000 | 51,19,688 |
70 | ~42,00,000 | – | – | – |
Chart Courtesy: Kurian Jose, CEO, Tata Pension Management
Key observations
1. Total Withdrawn: Rs 60 lakh (Rs 6 lakh annually for 10 years).
2. Residual Corpus: After withdrawals, a substantial balance (Rs 42 lakh) remains at the end of 10 years due to market growth.
3. Remaining 40 per cent corpus (Rs 40 lakh) used for annuity: Provides guaranteed lifetime income from the age of 60.
Impact of higher annuity rates at age 75
- See the impact of delaying annuity purchase till 75 years of age.
- Annuity rates increase with age as insurers base payouts on life expectancy.
- For instance, the corpus used to purchase an annuity at 75 years of age grows to Rs 50 lakh.
- Annuity Rate at 75: 8.5 per cent
- Annual Payout: Rs 4.25 lakh
- This is higher than the Rs 3.5 lakhs (7% rate) if purchased at 60.