NPS: Understanding new exit and withdrawal rules

The subscriber has option to defer purchase of annuity for a maximum period of three years, from the date of attainment of 60 or age of superannuation

NPS: Understanding new exit and withdrawal rules

National Pension System (NPS) subscribers can now withdraw up to Rs 5 lakh without purchasing an annuity is one  of the few recent customer-friendly measures taken by the Pension Fund Regulatory and Development Authority (PFRDA). The new regulations will be known as “Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) (Amendment) Regulations, 2021,”. Let’s take a look at some of the new changes:

Withdrawal up to Rs 5 lakh allowed

If the accumulated pension wealth in the subscriber permanent retirement account is equal to or less than a sum of Rs 5 lakh, the subscriber will have the option to withdraw the entire accumulated pension wealth without purchasing annuity upon such exercise of this option. However, after the exercise of this option, the right of the subscriber to receive any pension or other amount under the NPS or from the employer or government will be extinguished.

Option beyond 60 years

If a subscriber desires to contribute to his retirement account after reaching the age of 60 or superannuation, he or she can do so by writing in a form specifying the amount he or she wishes to pay to his or her individual pension account up to but not surpassing seventy years of age. Further, this option must be exercised at least 15 days before reaching the age of 60 or superannuation, whichever comes first.

Minimum age

If a subscriber’s accumulated pension wealth exceeds Rs 2.5 lakh but his or her age is less than the minimum age required for purchasing an annuity from any of the empanelled annuity service providers chosen by the subscriber, the subscriber will be required to remain enrolled in the National Pension System until he or she reaches the age of eligibility for an annuity.

However, in such instances, if the subscriber’s accumulated pension wealth is equal to or less than Rs 2.5 lakh, the subscriber will be able to withdraw the entire pension wealth without having to purchase an annuity.

When a subscriber reaches the age of 60 or superannuates in accordance with the service rules that apply to him or her, at least 40% of his or her accumulated pension wealth must be used to purchase an annuity providing for a monthly or any other periodical pension. The balance of the accumulated pension wealth, after such utilisation, will be paid shall be paid to the subscriber in a lump sum.

Deferment of the annuity purchase

The subscriber going forward has the option to defer the purchase of an annuity for a maximum period of three years, from the date of attainment of 60 years of age or the age of superannuation. In such case, the subscriber will have to inform his or her intention to do so in writing at least 15 days prior the attainment of the age of 60 years or the age of superannuation to the NPS trust for this purpose.

That said, in case if the death of the subscriber occurs before such due date of purchase of an annuity after the deferment, then the subscriber’s full accumulated pension wealth will be paid to the nominee(s) or legal heir(s). According to the PFRDA, the number of subscribers in various schemes under the National Pension System (NPS) increased to 426.75 lakh by the end-April 2021 from 346.01 lakh in April 2020 witnessing a year-on-year (Y-o-Y) growth of 23.33%.

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