National Pension System (NPS) is one of the most sought-after retirement saving schemes in India, particularly for central and private sector government employees. The government has modified its withdrawal policy quite frequently in the past to make it more flexible and convenient. Subscribers of NPS need to be aware of these significant modifications so that they can plan their financial security at retirement in the right way.
Reform of NPS withdrawal policy brings enormous changes affecting the people, especially the people in the government sector. The main updates in this article are explained in great detail, and it will be easy for students and working professionals to understand as well. The withdrawal policy is more liberal these days, with easier procedures, and improved benefits. Understanding of these changes will enable NPS subscribers to make informed decisions regarding their retirement savings and money planning. Continue reading for a brief rundown of the changes.
What is NPS?
National Pension System (NPS) is a government-owned retirement investment plan under which one can create a corpus in the future. NPS allows one to invest from time to time and get pension at the time of retirement. NPS is governed by the Pension Fund Regulatory and Development Authority (PFRDA).
- NPS has two accounts:
- Tier-I Account: Compulsory account with withdrawal restrictions.
- Tier-II Account: Voluntary account where withdrawal is simple.
Meaning of NPS Withdrawal Policy
Withdrawal policy in NPS governs withdrawal by subscribers from their savings at different stages of life. The policy includes withdrawals at retirement, partial withdrawals, and premature exit.
1. Withdrawal at Retirement
- Since the subscriber retires at the age of 60 years, he/she can withdraw up to 60% of corpus as a lump sum.
- The rest of the 40% can be invested in buying an annuity plan, which gives a pension each month.
- If the corpus is less than ₹5 lakh, the subscriber can withdraw the money in lump sum without buying an annuity.
2. Partial Withdrawal
- 25% of contributions can be withdrawn by the subscribers for limited purposes such as education, illness, or buying a house.
- Three years of subscription in NPS must pass before partial withdrawal.
- Partial withdrawal is exempt from tax as per existing laws.
3. NPS Premature Exit
- If a subscriber withdraws from NPS before attaining the age of 60, 20% of corpus has to be taken in lump sum.
- Remaining 80% has to be utilized for purchasing an annuity.
- Where total corpus is less than ₹2.5 lakh, entire corpus can be withdrawn without annuity.
4. Withdrawal on Death
- On death prior to retirement, the whole corpus thus accrued is left to the nominee.
- No purchase of annuity on death is required.
Key Changes in NPS Withdrawal Policy
The government has made significant reforms in the NPS withdrawal policy to provide greater flexibility and concessions, particularly to the subscribers of public services. The amendment simplifies withdrawal, offers money readily, and the process easier. We have described in this section the most significant amendments to enable the subscribers to adapt to them well:
1. Increased Withdrawal Amount
Previously, NPS subscribers used to have to buy an annuity if the overall corpus of their investment exceeded ₹2 lakh. But now, due to the recent notification, the withdrawal limit has been raised:
| Condition | Old Withdrawal Limit | New Withdrawal Limit |
| Full withdrawal except annuity (retirement) | ₹2 lakh | ₹5 lakh |
| Full withdrawal except annuity (pre-mature exit) | ₹1 lakh | ₹2.5 lakh |
| Partial withdrawal limit | 25% of contributions | 25% of contributions (no change) |
2. Simplified Exit Rules for Small Investors
- Complete withdrawal without annuity is available for accounts having less than ₹5 lakh at the time of retirement.
- Full withdrawal is allowed in case of premature withdrawals if the corpus is less than ₹2.5 lakh.
3. Option in Purchasing Annuity
- Subscribers were earlier mandated to buy an annuity scheme for a minimum of 40% of the corpus.
- With the new option, subscribers are provided with more flexibility to choose annuity schemes according to their requirements.
4. Quick Processing of Withdrawal Applications
- Processing time for withdrawal has been cut down to provide quicker access to funds.
- Members are now able to take advantage of the facility of submitting online withdrawal applications for quicker approval.
5. Tax Exemption on Partial Withdrawals
- Partial withdrawal of 25% under NPS continues to remain tax-free, thus prompting members to utilize their savings during emergency situations without being charged tax.
6. Digital and Online Services for Withdrawals
- NPS has introduced online quicker and more convenient withdrawal facilities.
- This enables the subscribers to submit withdrawal applications, track the status of an application, and receive money without any physical documents.
How These Upgrades Are Advantageous for NPS Subscribers
The recent improvements in the NPS withdrawal system have not only been convenient but also advantageous for the subscribers. Here’s why these upgrades are advantageous for the account holders in NPS:
- Increased Flexibility: Members enjoy the flexibility of withdrawing their money without strict annuity conditions.
- Enhanced Liquidity: Small investors can withdraw the total amount without any obligation to invest in an annuity.
- Easier Access to Money: Online services have facilitated easier and quicker withdrawal.
- Enhanced Retirement Planning: With increased withdrawal limits, members are better able to plan their retirement funds.
- Tax benefits: Partial withdrawals are tax-free, assisting during economic crises without deducting taxes.
Conclusion
NPS withdrawal norms reform brought down monumental changes that have simplified retirement planning and made it comfortable. The reforms bring in increased liquidity, increased financial stability, and tax benefits to NPS subscribers. You, as a working individual who is thinking of the future or a student who wishes to consider post-retirement savings, can take the right investment decisions with these reforms.
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