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NPS Withdrawal Rule Change: Know When you can Withdraw Full Pension Without Annuity

The regulator has also increased the maximum age of entry into the NPS from 65 to 70

The regulator has also increased the maximum age of entry into the NPS from 65 to 70

NPS Withdrawal Rule Change: The increased threshold of Rs 5 lakh will offer better liquidity to a certain segment subscribers amid the second wave of the Covid-19

Now, National Pension System (NPS) subscribers can withdraw the entire accumulated pension at one go, without purchasing an annuity if the corpus is less than Rs 5 lakh. The Pension Fund Regulatory and Development Authority has recently amended the rules to make NPS a more lucrative option for the investors. “…where the accumulated pension wealth in the Permanent Retirement Account of the subscriber is equal to or less than a sum of Rs 5 lakh, or a limit as specified by the Authority, the subscriber shall have the option to withdraw the entire accumulated pension wealth without purchasing annuity and upon such exercise of this option, the right of such subscriber to receive any pension or other amount under the National Pension System or from the government or employer, shall extinguish," it said.

Earlier, those who had a pension corpus of Rs 2 lakh, could withdraw the entire amount without investing in annuity schemes. For pension contributions of more than Rs 2 lakh, the NPS subscribers need to park 80 per cent of the accumulated balance in in the Permanent Retirement Account for buying annuities for periodical pensions. The subscriber could only access the rest 20 per cent as lump sum withdrawal

“What the new regulations have chiefly done is to lower the thresholds of exit, making it easy for subscribers with relatively smaller corpus, from the Rs 2 lakhs earlier to Rs 5 lakhs now in case of superannuation." said Karthik Natarajan, partner at Bhuta Shah and Co LLP.

The increased threshold of Rs 5 lakh will offer better liquidity to a certain segment subscribers amid the second wave of the coronavirus pandemic. “The subscribers having relatively smaller corpus could now exit from the NPS faster and more liquidity will be available to them to meet any urgent needs. This is a welcome responsive step by the Government, displaying nimble-footedness to the testing situations in the wake of the liquidity crunch created by the Covid-19 pandemic," he added.

“Ultimately, the intent behind placing reasonable barriers to exit remains to ensure that the accumulated balance in the Permanent Retirement Account does not get squandered away as often the subscriber’s interests are best served by a cautious mix of periodic disbursement rather than addressing a momentary need for funds," he further mentioned.

The regulator has also increased the maximum age of entry into the NPS from 65 to 70. The exit age limit has also been extended to 75 years.

NPS withdrawal rule

The NPS subscribers are allowed to withdraw their money from the account once they complete three years under some specified circumstances. However, for premature withdrawal, the amount can not exceed 25 per cent of contributions made by the NPS subscribers. The investors can withdraw partially for higher education of children, the marriage of children, for the purchase/construction of the residential house (in specified conditions) and for treatment of critical illnesses. NPS investors can make a partial withdrawal a maximum of three times during the entire tenure of subscription. It must be noted that these withdrawals are tax-free under Income Tax laws.

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first published:July 26, 2021, 15:05 IST