The National Pension System (NPS) is a retirement saving and investment product that was initially conceived with the objective of providing pension to the government employees who joined services post Dec 31, 2003. Under the scheme, the employee is paid a lump sum on retirement at the age of 60 upon the maturity of the NPS account. In order to ensure a secure future to its citizens, NPS was later made available to all the sections of people aged between 18 to 60 years from 2009.
More often than not, there prevails a general perception among investors that the government-rolled out schemes are easier to subscribe but harder to withdraw or exit, owing to their numerous embedded clauses. However, this isn’t the situation with NPS account as it facilitates transparent and multiple withdrawal options. NPS account is classified into two types – I and II. While NPS Tier – I account is compulsory and used for accumulation of retirement savings corpus, the Tier -II is optional and flexible with the number of NPS withdrawals. Here are some NPS withdrawal possibilities and rules applicable to them:
Upon touching the age of 60 years, the NPS subscriber must invest 40 percent of the accumulated amount to buy an annuity plan that would provide him with a regular monthly pension as long as he survives, and he is free to withdraw the remaining 60 percent of corpus in lump sum.
The NPS subscriber is allowed an option to delay the lump sum withdrawal till he attains the age of 70 years. Fresh contributions may be made to the NPS account until the age of 70 years.
If the pension amount accumulated is below Rs. 2 lakhs, the NPS subscriber is free to withdraw this full amount.
If a subscriber has held an NPS account for a minimum period of 10 years and wishes for a voluntary retirement/exit before its maturity, he must utilize a minimum of 80 percent of his retirement savings to purchase an annuity cover for regular monthly pension in-flow. The subscriber can withdraw a balance of up to 20 percent of the accumulated amount.
If the accumulated pension amount is below Rs. 1 lakh, the subscriber can opt for withdrawing the entire amount.
In the event of demise of the NPS subscriber before the maturity period, the nominee or legal heir is eligible to receive a death benefit by withdrawing the accumulated amount as a lump sum.
Based on the account type, premature NPS withdrawals before the completion of maturity period are allowed:
Under NPS Tier-I account, subscribers who have completed 15 years of service are allowed to make premature withdrawals in the form of repayable advances. They can withdraw 50 percent of their NPS contribution after completion of at least 25 years of service.
Under NPS Tier -II account, the withdrawals are unlimited, and the NPS account almost resembles a savings bank account.
Partial NPS withdrawals were not allowed until recently when the rules were amended to allow such withdrawals. Keeping in view the key emergencies or life events encountered by the NPS contributors, such as serious accidents, children’s higher education, marriage, treatment of critical illnesses self and family, and purchase or construction of the first house, the Pension Fund Regulatory Development Authority (PFRDA) understood the need to amend the rules for allowing partial withdrawals to meet contingencies. Here are the rules that came into effect through the amendment:
Amount: NPS subscribers can withdraw up to 25 percent of their contribution in the NPS account and the withdrawal applies only to the principal amount. Interest amount accumulated thus far on the account does not fall under partial withdrawal.
Tenure: A partial NPS withdrawal is allowed only after completing 10 years of contribution to the NPS account. Post the 10-year tenure, three withdrawals can be made with a 5-year gap between each withdrawal. In case of 13 critical illnesses specified under NPS, the 5-year gap rule shall not apply.
For instance, if you contribute Rs. 10,000 per month to your NPS account over a tenure of 10 years, you would be eligible to make partial withdrawals of Rs. 3,00,000, i.e., 25 percent of Rs. 12,00,000 after 10 years. You can make your next partial NPS withdrawal only after a gap of 5 years.
Having an NPS account that can be accessed through online platforms such as Finserv MARKETS makes the application process, account management, investing and withdrawal functions simpler- all with a single click of the button. At Finserv MARKETS, the NPS subscriber shall have the freedom to choose and switch between a host of investment options and fund managers, select pattern of allocation for his/her investments between the active and auto choices. The auto choice investment option facilitates investment of funds in a pre-defined proportion based on the subscriber’s age, and the exposure to risk progresses towards safer instruments with assured returns as the NPS subscriber ages.
Contrarily, choosing the active choice investment option gives the NPS subscriber the freedom to design his/her own portfolio among three asset classes – a high risk and return option with up to 50 percent equity allocation, corporate bonds with fixed income bearing instruments that offer medium returns, and government securities that provide assured returns.
Upon availing the NPS at Finserv MARKETS, the subscriber can also claim a tax deduction up to Rs. 1.5 lakhs, on both the employer-employee contributions under Section 80CCD (1) of the Income Tax Act 1961. On top of this, an additional deduction for an investment up to Rs. 50,000 in NPS Tier-I account is also exclusively available under Section 80 CCD (1B). So, the NPS subscriber can claim a total tax deduction of up to Rs. 2 lakhs and also avail the partial/premature withdrawal facility under Tier-I account and unlimited withdrawals under Tier – II account. At Finserv MARKETS, you can now become an NPS subscriber and avail all these benefits yourself. With online account management, you can access the NPS account from anywhere, anytime. All it takes to apply is filling up a simple online application!