10 NPS(National Pension Scheme) withdrawal rules that you should know | My Money Sage

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.NPS Withdrawal

Let’s take a closer look at the NPS withdrawal rules that apply to different categories of subscribers:

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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. 2 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 1 lakh, 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 has to invest 80% of the corpus in an annuity. If the corpus is less than Rs. 2 lakh, the nominee can opt to withdraw the full amount.

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. 2 lakhs, you can opt to withdraw the entire amount.

Also Read:Is it good to invest in annuities for retirement income

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. 1 lakh, 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 working for 15 years. You can now withdraw up to 50% of your contribution to the NPS after working for at least 25 years. 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.

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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 ten 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 ten years, you can make partial withdrawals of up to 25% of Rs. 12 lakhs, which is Rs. 3 lakhs. You can only make another partial withdrawal after five years.

Also Read:How to be Successful at Retirement Planning

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.

Also Read: NPS vs. Mutual Funds: A Retirement Planning Perspective

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.

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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.

About the author

KishorKumar Balpalli, believes that financial literacy and discipline is the key to one’s financial freedom. KishorKumar is a Certified Financial Planner, Personal Finance Blogger & the Founder of myMoneySage.in an award-winning Wealth Management platform. myMoneySage simplifies investing for individuals and amplifies business growth for Registered Investment Advisers by leveraging Artificial intelligence and machine learning. The AI of the machine plus the intellect of the human advisor enables comprehensive & client-centric advice at a fraction of the cost of a conventional adviser.

myMoneySage.in is an award winning personal finance platform. It helps you aggregate all your personal finance accounts like FD, Equity, Mutual Funds, PPF EPF, NPS including, Credit Cards & Loans etc. It's one place where you can track, plan and invest seamlessly. myMoneySage.in empowers you to invest in zero commission direct plans of mutual funds thereby helping you generate higher on investments. The best part is it comes with a lifetime Free plan.


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