Public Provident Fund: How these two PPF rules make it an excellent Pension tool

How to use Public Provident Fund (PPF) for pension: PPF subscriber is allowed to make partial withdrawal in a year during the extended 5-year block period.

Public Provident Fund: How these two PPF rules make it an excellent Pension tool
PPF can be used as a pension tool.

Public Provident Fund (PPF) is generally seen by people as an investment and tax-saving financial instrument. However, not many think of PPF as a pension tool. It is possible, but not like traditional pension schemes in which a certain amount is credited to the retired subscriber’s bank account on a regular basis.  With some smart planning, PPF can be used as a financial instrument to ensure a regular flow of money every year after investing for a long period, thanks to two provisions mentioned in the PPF rules.

First, Public Provident Fund Scheme, 1968 allows the extension of PPF account beyond the mandatory maturity period of 15 years. The PPF account can be extended in blocks of five years and for this, the subscriber has to submit a request in Form H in the account office. The PPF subscriber can continue to deposit in his account for 20/25/30/35 years or more in the block of five years each.

PPF rules state, "… a supporter may, on the expiry of 15 years from the year's end wherein the underlying membership was made however before the expiry of one year from that point, may practice a choice with the Accounts Office in Form H, or as close to thereto as could be allowed, that he would keep on buying in for a further square time of 5 years as indicated by the cutoff points of membership… "

Second, a PPF subscriber is allowed to make one partial withdrawal in a year during the extended 5-year block period. The total withdrawal in a five-year block period should not exceed 60 per cent of the balance.

“In the event of a subscriber opting to subscribe for the aforesaid block period he shall be eligible to make partial withdrawals not exceeding one every year by applying to the Accounts Office in Form C, or as near thereto as possible, subject to the condition that the total of the withdrawals, during the 5 year block period, shall not exceed 60 per cent of the balance at his credit at the commencement of the said period,” rules say.

With the help of above two provisions, a subscriber can withdraw a good amount per year from PPF after for his pension needs. Wondering, how? Well, suppose a person has a corpus of Rs 1 crore at the end of 25/30/35 years in PPF and the rate of interest is 7.9 like present. The account will earn an interest of Rs 7.9 lakh/year. S/he will be able to withdraw this interest amount every year as a partial withdrawal and use it as pension. Rs 7.9 lakh in a year would leave a little over Rs 65,000 per month for spending.

The final amount at the end of 25/30 years can be bigger, depending on the amount invested over the years. The maximum amount a subscriber can contribute to PPF account in a year is Rs 1.5 lakh.