Latest NPS exit and withdrawal Rules 2021

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With the recent online partial withdrawal rules in NPS, I think PFRDA planning to provide more liquidity features to the NPS. Hence, it is better to update ourselves with the latest NPS exit and withdrawal rules 2021.

Latest NPS exit and withdrawal Rules 2021

Before proceeding further, let us look back the basics about NPS.

NPS or New Pension Scheme is a retirement product launched by Government of India. It is managed by PFRDA (Pension Fund Regulatory and Development Authority). This product helps you to create retirement corpus.

Any citizen of India (whether resident or NRI) can invest in this scheme. The age of the subscriber must be within 18-60 years of age. However, an individual of unsound mind or existing members of NPS are not allowed to open new account. Therefore, an individual can open only ONE NPS account.

What are the investment choices?

Asset Class E-Invests predominantly in the equity market. You may say high return and high risk.

Asset Class C-Invests in fixed income instruments other than Government Securities. The risk is medium in this category.

Asset Class G-Invests in Government Securities. So lower risk and lower return.

Along with that, you have two different options to choose regarding allocation.

  • Active Choice-You has the option to choose your investment among E, C or G asset classes. However, if you opted for E asset class, then the maximum equity exposure is 75% (earlier it was 50%).
  • Auto Choice-If you don’t want to take an active part in switching asset class, then PFRDA will do it according to your age. It is predefined.

You can change both scheme preference and investment choices at any point of time. But it is allowed only once in a year.

Please remember that there is no ASSURED RETURN from NPS.

Your retirement fund will be managed by fund managers appointed by PFRDA. Currently, there are six fund managers. They are as below.

ICICI Prudential Pension Funds Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, SBI Pension Funds Limited, UTI Retirement Solutions Limited, and Annuity Service Provider (ASP).

You can change your fund manager at any point of time. This change is allowed only one time in a year.

Along with that, PFRDA tied with IRDA approved Life Insurance companies to pay the pension once the subscriber reaches 60 years of age. They are as below.

Life Insurance Corporation of India, SBI Life Insurance Co. Ltd., ICICI Prudential Life Insurance Co. Ltd., Bajaj Allianz Life Insurance Co. Ltd., Star Union Dai-ichi Life Insurance Co. Ltd., Reliance Life Insurance Co. Ltd. and HDFC Standard Life Insurance Co. Ltd.

Latest NPS exit and withdrawal Rules 2021

Let us now discuss about the latest NPS exit and withdrawal rules 2021. Here, there are three options. First one is attaining the age of 60 years (Superannuation age), Premature withdrawal or death of the subscriber. We will try to discuss on all these three options in detail.

# After attaining the age of 60 years

Let us now discuss about the exit options available under the NPS once the subscriber reach the age of 60 years.

When a subscriber reaches the age of Superannuation/attaining 60 years of age, he or she will have to use at least 40% of accumulated pension corpus to purchase an annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as lump sum.

Facility of phased Withdrawal is available for NPS Subscribers. Subscriber can opt for withdrawal of lump-sum amount (60%) in a phased manner (up to 10 instalments) over the period from 60 years (or any other retirement age as prescribed by the employer) to 70 years. However, Subscriber has to buy Annuity prior to Phased Withdrawal (from the mandatory 40%).

However, if the total accumulated pension corpus is less than or equal to Rs. 2 lakh, the Subscriber can opt for 100% lumpsum withdrawal.

There are three options available for subscribers once they reach the age of 60 years.

  1. Continuation of NPS account:
    The subscriber can continue to contribute to NPS account beyond the age of 60 years/superannuation (Up to 70 years). This contribution beyond 60 is also eligible for exclusive tax benefits under NPS.
  2. Deferment (Annuity as well as Lump sum amount):
    The subscriber can defer Withdrawal and stay invested in NPS up to 70 years of age. The subscriber can defer only lump-sum Withdrawal, defer the only Annuity or defer both lump sum as well as Annuity.
  3. Start your Pension:
    If the Subscriber does not wish to continue/defer NPS account, he/she can exit from NPS. He/she can initiate exit requests online and asper NPS exit guidelines start receiving a pension.

# Before attaining the age of 60 years

a) Withdrawal

If you wish to withdraw before the superannuation age of 60 years, then such exit option is called partial withdrawal. Hence, you are not allowed to withdraw fully. But to certain extent you can withdraw partially.

Hence, in this option you are allowed to partially withdraw and continue your NPS account.

You are allowed to withdraw 25% of the accumulated corpus at any time (but excluding contributions made by the employer), as on the date of application of withdrawal. Few points to note are as below.

  • The subscriber must be in the National Pension System for at least 3 years.
  • The subscriber permitted to withdraw accumulations not exceeding 25% of the contributions made by him and standing to his credit in his individual pension account, as on the date of the application for withdrawal.
  • The subscriber allowed to withdraw only a maximum of 3 times during entire tenure of subscription.
  • You must submit this withdrawal request in the specified form along with necessary documents to the central record keeping agency or the National Pension System Trust, as may be specified, for processing of such withdrawal claim.
  • If subscriber suffering from diseases, then a family member can submit the application.
  • For Tier II account, one can withdraw either partial or full amount available in this without any condition.

Purpose of withdrawal

You are not allowed to withdraw the NPS corpus as per your wish. There are certain purposes set by PFRDA. They are as below.

  • For higher education of your children including a legally adopted child (or) for self.
  • Individual NPS subscribers who wish to set up a new business or acquire a new business will also be allowed to make partial withdrawals from his contributions.
  • For the marriage of your children, including a legally adopted child
  • You can make a partial withdrawal for the purchase or construction of a residential house or flat in your name or in a joint name of your spouse. In case, you already own a residential house or flat (either individually or in the joint name), other than an ancestral property, no withdrawal under these regulations shall be permitted.
  • If you /your spouse, children, including legally adopted child or dependent parents suffer from any specified illness, a partial withdrawal request can be submitted by you or any of your family members. (Specified illness – which shall comprise of hospitalization and treatment in respect of the following disease) :
  1. Cancer;
  2. Kidney Failure (End Stage Renal Failure);
  3. Primary Pulmonary Arterial Hypertension;
  4. Multiple Sclerosis;
  5. Major Organ Transplant;
  6. Coronary Artery Bypass Graft;
  7. Aorta Graft Surgery;
  8. Heart Valve Surgery;
  9. Stroke;
  10. Myocardial Infarction;
  11. Coma;
  12. Total blindness;
  13. Paralysis;
  14. An accident of serious/ life-threatening nature.
  15. Any other critical illness of a life-threatening nature as stipulated in the circulars, guidelines or notifications issued by the Authority from time to time.
  16. Such advance withdrawal will not attract any taxation. Hence, there is no tax liability for such advance withdrawal.

Partial withdrawal request can be initiated online by Subscriber. Alternatively, Subscriber can submit physical partial withdrawal form (601-PW) along with documents to POP, based on which POP can initiate online request.. However, POP is required to ‘Authorize’ the Withdrawal request in CRA system.

As of now, the eligible Subscribers need to submit their application for a partial withdrawal to the respective nodal officers/POPs along with the supporting documents to substantiate the reasons for their request for partial withdrawals.

In order to ease the process of partial withdrawal and make it simple, online and paperless in the interest of Subscribers, it has now been decided to allow the Subscribers to allow partial withdrawal based on ’self-declaration’ and thereby doing away with the submission of supporting documents to substantiate the reasons for partial withdrawal.

To further expedite the process and to ensure timely payment of partially withdrawn amount into the Subscribers’ bank account, the partial withdrawal requests received online shall be directly processed in Central Record Keeping Agency (CRA) system thereby doing away with the authorization of the request at the level of nodal office/POP.

This Iiberalized process is however strengthened by effective due diligence with technology enabled INSTANT BANK ACCOUNT VERIFICATION through penny drop to identify the beneficiary and the Subscriber’s bank account. In order to ensure payment of amount into correct bank account number and rightful beneficiary, CRAs shall be carrying out ’Instant Bank Account Verification’ thfough penny drop and the cost of the same shall be borne by the Subscribers.

b) Exit

In case of pre-mature exit (exit before attaining the age of superannuation/attaining 60 years of age) from NPS, at least 80% of the accumulated pension corpus of the Subscriber has to be utilized for purchase of an Annuity that would provide a regularmonthly pension.The remaining funds can be withdrawn as lump sum.However, you can exit from NPS only after completion of 10 years.

If the total corpus is less than or equal to Rs. 1 lakh, Subscriber can optfor 100% lumpsum withdrawal.

# Death of the Subscriber before attaining the Superannuation

Upon the death of the subscriber, the entire accumulated pension corpus (100%) would be paid to the nominee/legal heir of the subscriber.

Following documents are required to be submitted from the nominee/claimant along with the completely filled Withdrawal forms:

  1. Original PRAN card
  2. Advanced stamped receipt to be duly filled and cross-signed on the Revenue stamp by the Claimant.
  3. KYC documents (address and photo-id proof)
  4. ‘Cancelled Cheque’ (having claimant’s Name, Bank Account Number and IFS Code) or ‘Bank Certificate’ on Bank Letterhead having claimant’s name, Bank Account Number and IFS Code required to be submitted as bank proof. ‘Copy of Bank Passbook’ can be accepted, however, it should have claimant’s photograph, Name and Bank IFS Code on it and should be self-attested by the claimant.
  5. Original Death Certificate issued by the Registrar of birth and death

If there are multiple nominess to the account, then the nominees have to follow the below process.

  1. The withdrawal form needs to be submitted by all the nominees registered in CRA system.
  2. If any nominee/s doesn’t want to claim the NPS corpus – a) Relinquishment deed (on Rs 100 stamp paper, notorised) is to be submitted by the nominee/s who doesn’t want to claim the NPS benefits. b) Indemnity Bond (on Rs 100 stamp paper, notorised) is to be submitted by the nominee who is claiming the NPS benefits.
  3. In case one nominee is a major and the other is a minor – a) Major nominee will submit the Withdrawal Form. b) Guardian (on behalf of the minor) will submit the Withdrawal Form along with the birth proof of the minor.

Do remember that once you close your Tier 1 account, then the Tier 2 account will also be closed automatically.

Conclusion:- I hope you have full clarity on the latest NPS exit and withdrawal Rules 2021. But I personally feel NPS is not a great product for the accumulation of our retirement corpus (National Pension Scheme (NPS) – 5 Biggest Disadvantages). But it is left with you to decide your own path!!

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22 Responses

  1. Dear Basu Sir,
    I work in State Service, with an NPS account for which POP-SP was Post Office. Because of these Postal employees tortourous mentality, i want to shift my POP-SP from Post Office to my Bank ( Central Bank of India). How to shift it Sir?

    regards and thanks in advance Sir

      1. Sir,
        1. Contributions are getting credited to my account 15-20 days after deposit. My other friends accounts whose POP-SP is not post office, is getting credited in 3 days. only my account is problem, because POP SP is post office. i requested about this with a letter, but nothing done in last 8 months.one contribution was credited 70 days later, after i complained and fought with them.
        2. Withdrawl of tire 2 requests to be processed immediately. but again my application is kept pending for procedural delays. they just simply dont want to work. thats all. its already 7 days since my application, nothing done. I tried online, but it says we have to upload UOS12 form, for which POP SG signature is mandatory. they are not doing that also. they say as per procedure, they have to send to higher office in Bangalore.

        regards

  2. I had resigned from PSU after serving for 2 years on 2015 and I had applied for nps exit then through my employer. They said you can’t do this before 10 years. I am settled in abroad.
    Please suggest me

  3. Hello Sir,

    I understand NPS is not a great product for retirement , but I have started and have contributed for 3 years (1.5 Lkahs accumulated), so can I premature exit now instead of continuing till age 60, Will that be a better option?.Now I am only 31.

  4. Hi sir. I was an employee of SBI group, worked for 4 years 2013-17, before pursuing my independent business. My contribution is not done afterwards to NPS, any possibility for me to exit from or withdraw my NPS fund? I didn’t receive any financial benefits from bank when I resigned, and it will be of great help to get the NPS amount.
    Kindly give some guidance.
    Thank you

  5. Dear Sir, Good analysis as always. Just wanted to highlight other side of NPS. I opted for 10% employer contribution, so naturally got 30% tax savings. My current CAGR in NPS is 17% without tax savings and 32% with tax savings.
    Except the annuity buying and max 3 times withdrawl, i think it still is one of the best options out there for those who can wait for a decade or so. Would love to know your opinion.

  6. 1. The tax implications of 60% commutation amount is not discussed in the blogpost except stating that “one can withdraw 60% lumpsum”.
    Kindly clarify on the taxation aspect.
    2. Whether continuation beyond 60 years of age (upto 70 years max) is with contribution or without contribution.

  7. Active choice has option of maximum equity allocation of 75% & not 50% which you have mentioned (3 years back it was maximum 50%)

  8. Can Overseas Citizen of India (OCI) card holder, who is resident in India, invest in NPS. Basically, can a foreign citizen, whose parents are Indian citizens and is resident in India, invest in NPS.

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