While it is strongly advised not to break the investments made for your golden years, it is important to know the rules for exiting your investments. The National Pension System (NPS) is emerging as a popular retirement savings system. You can withdraw your NPS investments both prematurely and after maturity, with different rules applicable for the types of withdrawals.
Here we take a look at the applicable withdrawal and exit rules as well as the processes to follow.
According to NPS standards, the lump sum can be withdrawn from the scheme at retirement pension age or at age 60.
At least 40 percent of the pension proceeds must be used for the purchase of an annuity product and the balance is paid as a lump sum to the subscriber. The obligation to take out an annuity aims to provide for a monthly pension after retirement. Note however that if the total accumulated pension corpus is less than or equal to ₹ 2 lakh, the NPS subscriber can opt for a 100% lump sum withdrawal without annuity purchase.
A claim ID is required to request a withdrawal. The Claim ID is automatically generated six months before the retirement date or age 60 and is communicated to the subscriber by email, letter and SMS. The intimation of the claim ID allows the subscriber to make changes (such as date of birth, address, PAN, bank details and appointment) in their NPS account before initiating the call. withdrawal request. This is important because no changes can be made to personal data once the withdrawal request has been submitted.
Using the Claim ID, one can complete the physical withdrawal form and submit it along with the KYC documents to the PoP (Point of Presence) office. You must enter the necessary details, including choosing the Annuity Service Provider (ASP) and the annuity plan that will provide the pension.
One can complete and submit the withdrawal form online as well as on the registered CRA (Central Record Keeping Agency) website (for example, www.cra-nsdl.com) by logging in using your PRAN details . Your form will be verified and then the withdrawal request will be authorized. If your PoP does not automate the verification of your bank details online, you may need to visit your PoP to submit the required documents.
After this process, the money will be credited within four to five business days to your registered bank account.
If you want to withdraw from the NPS account before you turn 60, there are two ways to do it. Premature discharge is permitted after completing 10 years in the NPS. In the event of premature withdrawals, at least 80 percent of the subscriber’s accumulated pension corpus must be used to purchase an annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as a lump sum. However, if the total accumulated corpus is less than or equal to ₹ 1 lakh, the subscriber can avail himself of the full withdrawal option without annuity purchase.
For the claim ID, the subscriber can visit the PoP or generate it online. Once the claim ID has been generated, using it, the subscriber can complete the withdrawal form (physical / online form). The rest of the process is like a withdrawal at maturity.
It is important to note that your NPS Level II account will also be closed once you request to close the Level I account upon exiting NPS. The shares under the level II account will be exchanged and the amount will be transferred to your given bank account.
As noted above, you can also opt out of the NPS before age 60 by partial withdrawal. This can be done, provided that the subscriber has completed three years from the date of joining the system.
The partial withdrawal option is subject to conditions. It is only allowed for specific reasons, such as children’s higher education or marriage, buying / building a residential house, and treating serious illnesses (including Covid-19). That’s not all. The amount of the withdrawal cannot exceed 25 percent of the contributions (without the income accrued thereon) made by the subscriber. Conditional withdrawals can occur a maximum of three times during the duration of the NPS subscription.
Partial NPS withdrawals can be made entirely online, the subscriber simply needs to log into the NPS account. The subscriber must make a self-declaration that the amount withdrawn will be used for the stated purposes specified by the pension regulator.
Upon the death of the subscriber
In the event of the subscriber’s death, the entire accumulated pension corpus (100 percent) will be paid to the subscriber’s legal representative / heir. In this case, the generation of the claim ID is not required. The PoP, upon notification, will directly raise the withdrawal request for a death event.
In addition to the key KYC documents, the withdrawal form of all applicants and the death certificate must also be submitted to the PoP to claim the investment proceeds from the deceased investor.