Highlights:
• The National Pension Scheme subscribers could cash in, and close their individual pension account in the normal method when they reach the specified age of 60 years, or on superannuation or retirement
• Subscribers have the choice to carry on their individual subscription to NPS beyond the set age of 60 years, up to the age of 70 years.
The National Pension Scheme (NPS) is a Central government-sponsored savings scheme in which a government employee invests a sum from their monthly salary towards a regular pension. However, the same contribution is also been made by the employer. But it is important for the employee to know the rules regarding how to exit it or look for an extension and how that could have an effect on the withdrawal.
The NPS subscribers could cash in and close their individual pension account in the normal way when they have reached the set age of 60 years, or on superannuation or retirement.
Also, any subscriber who joins the NPS after the age of 60 but before 65 years of age might exit on completion of 3 years from the date of opening the account.
Premature exit for NPS subscribers
NPS subscribers could make an early exit from the NPS, before superannuation or before the end of the prescribed age limit for exit, only if they remained with NPS for minimum10 years.
Though subscribers who joined NPS after the prescribed age of 60 but before 65 are exceptions, and for them, early exit shall mean exiting before the end of 3 years from the date of joining.
Subscribers who choose to exit early have to make use of at least 80% of the gathered amount to purchase an annuity as well as take out the balance as a lump sum.
If in case the subscriber dies, the whole amount collected is paid out towards the nominee in a lump sum under the model for every citizen. The nominee(s) have the option to purchase any of the annuities being offered if they want to.
Thus as per the government model, 80% of the gathered amount is required to use in order to buy an annuity and the balance amount is paid out towards the nominees or legal heirs.
Extension to NPS
The Subscribers have the choice to carry on their individual subscription to NPS beyond the age of 60 up to the age of 70. They could exercise this option by making the request in writing at least 15 days before they become qualified for the normal exit. In case they did not give it in writing it would be deemed to be done if the subscriber doesn’t initiate the procedure to withdraw the gathered pension. This is not applicable to the government and corporate models, where the intention is to continue needs to be given in writing.
Even after applying the choice of continuing towards contributing to NPS beyond the set exit date, subscribers could exit at any point through registering a withdrawal request.
Withdrawals from NPS
Subscribers who already have completed the mandatory term in NPS are required to annuitize a minimum of 40% of the amount as on that date. The balance amount could be withdrawn by them in a lump sum or in a phased manner, depending on their wish till the age of 70. The balance left for phased withdrawal shall be affected by fluctuation in the net asset values (NAVs).
In case the subscriber selects to withdraw a part of the amount in a phased manner, then at least 10% of the balance is required to be withdrawn every year till the age of 70. The sum remaining in the retirement account at age 70 should be completely withdrawn.
The buying of annuity could be deferred also for a maximum of 3 years from the date of regular exit. This request must be registered in the CRA system at a minimum 15 days prior towards the designated date of exit.
But it should be kept in mind that the option towards deferring the lump sum withdrawal in a phased manner till the age of 70 as well as the buying of an annuity is not available to subscribers who did not choose to extend their period of contribution to National Pension Scheme beyond the prescribed age of retirement.
What is the National Pension Scheme?
The National Pension Scheme is a Central government-sponsored savings scheme in which a government employee invests a sum from their monthly salary towards a regular pension.
However, the same contribution is also been made by the employer. The funds then are invested by pension fund managers in several investment schemes.
This pension program is open towards staffs from the public, private and even the unorganized sectors by way of the exception of those from the armed forces. The scheme boosts individuals to invest in a pension account at regular intervals in the course of their employment. After retirement, the subscribers could take out a certain percentage of the amount. As an NPS account holder, an individual would receive the remaining amount as a monthly pension post their retirement.
Earlier, the NPS scheme only covered the Central Government employees. Presently, the PFRDA has made it open towards all Indian citizens on a voluntary basis. NPS scheme holds huge value for anyone who works in the private sector as well as needs a regular pension after retirement.
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