Bank of Baroda — Major Initiatives (2025)
1. National Pension System (NPS) – Overview
The National Pension System (NPS) is a defined contribution, market-linked retirement scheme regulated by PFRDA. The final retirement corpus depends on contribution amount, investment duration and market performance.
2. Rationale Behind New NPS Rules
- Earlier rules were rigid and annuity-heavy
- Low annuity returns reduced attractiveness
- Limited liquidity discouraged investors
- Need for post-retirement flexibility
3. Mandatory Annuity – Past vs Present
| Particulars | Earlier | New |
|---|---|---|
| Annuity Requirement | 40% | 20% |
| Lump Sum Withdrawal | 60% | 80% |
| 100% Lump Sum Threshold | ₹2 lakh | ₹5 lakh |
Lower annuity requirement gives investors higher control over retirement corpus.
4. Exit Before 60 Years
- Minimum subscription reduced from 10 years to 5 years
- Up to 20% lump sum allowed
- 80% corpus compulsory annuity
Premature exit still leads to heavy annuitisation; NPS is unsuitable for short-term goals.
5. Partial Withdrawals
- Up to 4 withdrawals allowed
- Maximum 50% of own contribution
- Lock-in reduced to 3 years
6. Systematic Unit Redemption (SUR)
Subscribers can withdraw funds gradually from age 60 up to 75 while remaining invested. This works similar to SWP in mutual funds.
7. Exit Scenarios
Death of Subscriber
100% corpus paid to nominee; no annuity mandatory.
Exit After 60
- Corpus ≤ ₹5 lakh → 100% lump sum
- Corpus > ₹5 lakh → 80% lump sum + 20% annuity
8. Taxation – Clarity & Confusion
Clearly Exempt
- Up to 60% lump sum at maturity
- Partial withdrawals
- Death benefits
Taxable
- Annuity income as per slab
Systematic withdrawals (SUR) are not explicitly defined in the Income Tax Act.
Current interpretation treats them as part of tax-free lump sum, but future policy risk exists.
9. Conclusion
The new NPS rules significantly improve flexibility and investor control. However, taxation ambiguity and policy risk mean NPS should be used strictly as a long-term retirement product.