Kolkata: One of the reasons why NPS, or National Pension System, is yet to enlist the desired number of subscribers is often cited to be the rigidity inherent in the structure. PFRDA, or the Pension Fund Regulatory and Development Authority, which regulates the system, has eased one of the rigid rules of annuity. The PFRDA’s new rules will make it easier for retirees could find themselves stuck with older annuity contracts. On May 14, PFRDA issued a circular which stipulated that annuity service providers can now permit surrender of annuity policies in select cases. These are specifically instances where the annuitant, or a family member of the annuitant, is critically ill and needs funds quickly on an emergency basis. There is a second category too — NPS subscribers for whom the annuity policy was issued before October 24, 2024 and already carried an explicit surrender clause. While the earlier system almost debarred exiting an annuity, the new PFRDA rule can be viewed as a significant easing of the rigidity.
The significance for NPS subscribers
Under the NPS rules, subscribers are required to retain at least 40% of their retirement corpus to buy annuity. This other portion — 100% minus whatever is retained for annuity — is used for providing monthly pension after retirement. These rules governing the annuity portions are extremely rigid and illiquid. The NPS subscribers could not exit annuities earlier. Needless to say, it was of inconvenience to many NPS subscribers who just couldn’t take out the money irrespective of how severe the emergency was.
What changed after the 2024 circular
PFRDA had earlier tightened annuity rules. In October 2024 a circular barred annuity service providers from allowing surrender or cancellation of annuities. The only exception was a free-look period available immediately after policy issuance. The argument at that time for PFRDA was that this rigid rule was required for “long-term old-age income security for subscribers”.
How will the system work
PFRDA has said that if the annuitant or a family member is critically ill, the annuity service provider will assess the application. Only if it is satisfied with the situation, will it approve surrender of the annuity. Before processing a request, the annuity service provider has to inform the annuitant the final surrender amount. It will provide a breakup of all charges, deductions and taxes and then take in writing from the NPS subscriber about his/her consent before proceeding with processing the request. The written consent of the annuitant is extremely crucial in this matter.