What are the Rules for Exit From NPS?
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What are the Rules for Exit From NPS?

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  • 24th Feb 2022
  • 332

What are the Rules for Exit From NPS?

The Indian government has a National Pension System (NPS) for its citizens who contribute to it during their working lives to secure a considerable sum of money that would allow them to lead a safe, secure, and fulfilling life after retirement. NPS is one of the most common and effective retirement plans in India. This investing tool was established keeping in mind - people’s desire to spend their senior years in leisure and contentment, without having to worry about where the money would come from to finance their dream retirement lifestyle. Today, many invest in this scheme and look forward to a comfortable life with their loved ones in the future.

However, sometimes, people want to or have to exit from the National Pension Scheme based on their circumstances, wishes, or requirements, and there are provisions for that. Once they have made their exit decision, the Pension Fund Regulatory and Development Authority (PFRDA) provides a set of rules that allow them to do the same by following a certain procedure. In this article, we will go over these terms to see what ensures a seamless departure.

For Government & Private Sector Employees

  • The rules apply whether one works for the government or the private sector. They should invest at least 40% of their yearly salary into a pension plan, with the choice of receiving the remainder in one lump sum. For this, an NPS calculator can be used to figure out the plan cost.
  • If a person’s total pension is less than Rs. 2 lakhs, they may choose to withdraw the full amount.
  • One can defer the lump sum withdrawal until they reach the age of 70

Voluntary Retirement By Corporate Sector Employees

  • For a government employee who takes voluntary retirement, a minimum of 80% of the funds must be put into an annuity.
  • If an individual’s cumulative pension is less than Rs. 1 lakh, they can opt for withdrawing the entire sum.

Death Of A Corporate Employee

  • In the case of a corporate employee’s death, the nominee is eligible for NPS death benefits and has the option of withdrawing the entire account balance as a lump payment.

Rules For Partial Withdrawal From NPS

After ten years, one can make a partial withdrawal from their NPS account. In reality, NPS participants are allowed three withdrawals with a five-year interval between each one of them.

Contributors have the option of withdrawing up to 25% of their funds. Furthermore, one can only withdraw a portion of the principal amount. As a result, they won’t be free to withdraw any income from their NPS account.

Rules For Premature NPS Withdrawal

Tier I Account

Prior to 2011, clients were locked into a contract that extended till they reached the age of 60. Existing NPS premature departure criteria, on the other hand, allow participants to exit via reimbursable advances before completing 15 years of service.

Additionally, after 25 years of service, one may be eligible to receive up to 50% of their NPS deposit. Withdrawals are only authorized in the case of a life-threatening illness, other crises, or life events that require financial help.

Tier II Account

For individuals who have invested in a Tier II account, NPS allows limitless withdrawals. As a result, the NPS account functions similarly to a savings account.
However, one should be mindful that the withdrawal procedure might be time-consuming due to the restricted number of Points of Presence (PoP)

To summarise, closing an NPS account is as easy as establishing one. For an easy exit, keep the above pointers in mind things should work out quite smoothly!

- A Consumer Education Initiative series by Kotak Life

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