The government introduced the National Pension Scheme (NPS) to provide a regular income to retired people. The NPS offers a range of withdrawal options before and after retirement. Here we will look at the different options for withdrawal from the NPS.
Let’s take a closer look at the NPS withdrawal rules that apply to different categories of subscribers:
Government employees on retirement
The subscriber has to invest at least 40% of the accumulated corpus in an annuity. You can postpone lump sum withdrawal of the balance amount until you reach the age of 70. If the accumulated corpus is less than Rs. 5 lakhs, you can opt to withdraw the full amount.
Government employees who take voluntary retirement
The subscriber will have to invest at least 80% of the corpus in an annuity. If the corpus is less than Rs 2.5 lakhs, you can opt to withdraw the full amount.
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Government employees who pass away
On the demise of the subscriber before retirement, the nominee/legal heir will receive the complete amount accumulated in NPS.
Private sector employees and citizens on retirement
The subscriber will have to invest at least 40% of the corpus in an annuity and can opt to withdraw the balance amount as a lump sum. You can also postpone the withdrawal of the lump sum amount until you reach the age of 70. If the accumulated corpus is less than Rs. 5 lakhs, you can opt to withdraw the entire amount.
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Private sector employees and citizens who opt to exit
The subscriber must have maintained the account for at least ten years. You will have to invest at least 80% of the corpus in an annuity. If the accumulated corpus is less than Rs. 2.5 lakhs, you can withdraw the full amount.
Private sector employees who pass away
On the demise of the subscriber, the nominee can opt to withdraw the accumulated corpus as a lump sum.
Premature withdrawal rules governing NPS Tier-I and Tier-II accounts
NPS Tier-I accounts
Until 2011, withdrawals from NPS Tier-I accounts were not allowed until the age of 60. The amended rules allow subscribers to make premature withdrawals after being invested in this scheme for at least 3 years. You can now withdraw up to 25% of your contribution to the NPS. You can withdraw funds to cover critical illnesses, emergencies, and other events that need financial aid.
NPS Tier-II accounts
You can make unlimited withdrawals from your NPS Tier-II account, which makes it like a savings bank account. However, it isn’t as easy to withdraw funds from the NPS because you need to complete the formalities through a Point of Presence (POP). There are not many POPs, and no online application option is available.
Rules governing partial withdrawal from the NPS
New amendments have relaxed the rules governing partial withdrawals from the NPS:
The proportion of your savings that you can withdraw
In the past, subscribers were not allowed to make partial withdrawals from the NPS. The amended rules allow subscribers to withdraw up to 25% of the amount saved. Withdrawals are only allowed on the principal amount, and you cannot withdraw the interest earned. You can only take out 25% of the money deposited in the NPS account, not 25% of the total balance.
The period after which you can make partial withdrawals
A subscriber can only make a partial withdrawal after completing three years of service. You can make three partial withdrawals with a gap of 5 years between each of them. For example, if you deposit Rs. 10,000 per month for three years, you can make partial withdrawals of up to 25% of Rs. 3.6 lakhs, which is Rs. 90,000. You can only make another partial withdrawal after five years.
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You can make partial withdrawals for specified emergencies.
The rules now allow partial withdrawals only in exceptional cases for the following reasons:
- To construct or buy your first house
- Fatal accidents
- Higher education of a child
- Marriage of a child
- Treatment of a critical illness affecting the subscriber, spouse, child, or dependent parents.
The five-year gap rule does not apply in some instances
The five-year gap rule for partial withdrawals does not apply in the following cases:
- A serious or life-threatening accident
- Aorta graft surgery
- Cancer
- Coma
- Coronary artery bypass graft
- Heart valve surgery
- Kidney Failure (End-stage renal failure)
- Major organ transplant
- Multiple sclerosis
- Myocardial infarction
- Paralysis
- Primary pulmonary arterial hypertension
- Stroke
- Total blindness
- Any life-threatening, critical illness as per notifications, circulars, or guidelines issued by the authority.
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Changes in NPS exit rules
Earlier, the age for exiting from the NPS was 60 years, but this has changed. NPS subscribers are now allowed to exit at the retirement age specified by their employers. Some employers set 58 years as the retirement age. The following options are now available to subscribers who want to exit from the NPS:
- On retirement, you need to invest at least 40% of the accumulated corpus in an annuity offered by an authorized agency. You can withdraw the balance 60% of the corpus as a lump sum or in installments. Some other options are also available.
- You can postpone buying an annuity for three years from the date when you reach the age of 60. This delay may suit you if you have allocated a big part of your contribution to equities. It will allow you to postpone withdrawal if the stock markets are low at the time of retirement.
- You can also postpone the withdrawal of 60% of the corpus until you reach the age of 70. During this period, you can also make new contributions. On reaching the age of 70 years, you can withdraw the accumulated amount as a lump sum or in installments.
Conclusion
NPS rules have become much more flexible now, and you can make full or partial withdrawals as per your needs. However, you will have to invest a part of the corpus in an annuity that provides a pension. Many withdrawal options are now available to meet the needs of subscribers with different priorities.