The Pension Fund Regulatory and Development Authority (PFRDA) issued a notification on October 24, 2024, updating its guidelines for the cancellation or surrender of annuity policies under the National Pension System (NPS).
This circular supersedes the previous directive issued in July 2021 and aims to provide clarity on the compliance with Regulation 10(3) of the PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015.
The primary purpose of this circular is to ensure a clear understanding of how annuities under the NPS can be handled after they are purchased, and it emphasizes the need for consistency and compliance with the terms laid out in the annuity contracts.
What’s New in the Circular?
The new circular emphasizes several key points regarding the cancellation or surrender of annuities issued under the NPS:
- Limited Window for Cancellation: Regulation 10(3) of the PFRDA (Exits and Withdrawals under the NPS) Regulations specifies that once an annuity is purchased, it cannot be cancelled or reinvested with another Annuity Service Provider (ASP) unless it falls within the “free look period” specified by the ASP. This means that subscribers have a limited window to reconsider their annuity choice, but beyond this period, no cancellations or transfers will be allowed.
- Free Look Period Explained: The free look period allows NPS subscribers to cancel their annuity purchase and opt for another annuity, either with the same ASP or a different one. However, once the free look period expires, no further cancellations or changes will be entertained. This ensures that annuities are taken seriously by subscribers, and once chosen, they become binding.
- Transfer of Proceeds: In cases where the annuitant decides to cancel the annuity and purchase one with a new ASP within the free look period, the cancellation proceeds will be transferred to the Trustee Bank (the source account). This transfer will be communicated to the Central Recordkeeping Agency (CRA), which will then issue a new annuity policy to the subscriber.
- Exceptions to the Rule: While the general rule prohibits the cancellation or transfer of annuities beyond the free look period, there may be exceptional cases where such actions are allowed. If a legal requirement or specific cause is determined by PFRDA, the annuity cancellation may be carried out in accordance with specific operational instructions issued by the Authority.
Key Takeaways:
- Annuity cancellation is only allowed within the free look period, which is set by the Annuity Service Provider (ASP).
- After the free look period, no cancellations or transfers of annuities will be entertained.
- If a subscriber cancels their annuity and opts for a new one, the proceeds are transferred to the Trustee Bank for the issuance of a new policy.
- Exceptions may apply in specific cases, such as legal requirements, and will be handled according to further instructions from the PFRDA.
