What are the Rules for Exit From NPS?

Key Takeaways

• There are measures for when persons choose to or are required to leave the National Pension Scheme due to their circumstances, wishes, or requirements.
• The Pension Fund Regulatory and Development Authority (PFRDA) offers a set of guidelines that permit people to do the same by adhering to a specific procedure once they have made their retirement decision.

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 worrying 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

1 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.

2 If a person’s total pension is less than ₹2 lakhs, they may choose to withdraw the full amount.

3 One can defer the lump sum withdrawal until they reach the age of 70

Voluntary Retirement By Corporate Sector Employees

1 For a government employee who takes voluntary retirement, a minimum of 80% of the funds must be put into an annuity.

2 If an individual’s cumulative pension is less than ₹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 partially withdraw 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

Before 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)

How to Request Investment Withdrawals?

The application form is available on the official website of NSDL, and you can leave NPS digitally by downloading and completing it. You need to be aware that there are three different NPS forms available that can be used to process exit in the following situations:

1 Withdrawal in part

2 Early NPS termination

3 Following maturity, withdrawal

For the death of a subscriber who works for the government, there is also a unique NPS exit form that is applicable.

Here is how to start a withdrawal request to leave the NPS program:

Step 1: Enter your PRAN and password to access the CRA system.

Step 2: Click the "Exit from NPS" option. Click "Initiate Withdrawal Request" after that.

Step 3: Fill out the required information, including your name, date of birth, gender, residence, PAN number, nominee information, annuity service provider and annuity scheme preferences.

Step 4: Print this withdrawal form out. Affix a photo to it and place a sign across it. Additionally, you must sign the declaration in opposition. Then, deliver the paperwork and your KYC records to the appropriate Nodal Office (for government workers) or PoP. (for corporate employees).

How to Close an NPS Account? 

An NPS account can be closed offline or online. Let's first go over how to terminate an NPS account online:

Step 1: Start an exit request by entering your login information into the CRA system.

Step 2: The website shows you messages about OTP authentication and request authorization. The corpus should be set aside for annuity/lump sum, nomination information, etc., at this point.

Step 3: Upload scanned copies of your KYC documents. 

Step 4: Complete the process' authentication by entering an OTP that was produced on your registered contact number and email address.

How to Close an NPS Account before Retirement? 

You can retire voluntarily or take a premature exit under the NPS. You should be aware that you must have kept up with your NPS account for at least ten years to qualify.

Additionally, you must put at least 80% of the money into an annuity according to NPS exit requirements. However, if your total pension is less than ₹1 lakh, you may withdraw the entire sum.

Wrapping Up

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!

FAQs on NPS

1 When can a subscriber exit from NPS?

After three years, a regular exit is permitted. At least 40% of the corpus must be used by the subscriber to buy an annuity, with the remaining funds being available for lump-sum withdrawals. 100% of the corpus may be withdrawn in one lump sum if it is less than or equal to ₹5 lakh.

2. What options for exit from NPS are available for subscribers at the time of superannuation?

If subscribers leave the plan too soon, they are only eligible for a full withdrawal if their total accrued corpus is less than ₹2.5 lakhs. However, subscribers can only request a 100% withdrawal from their superannuation if their total accrued corpus is less than ₹5 lakhs.

3. What is an exit claim in NPS?

Exit Claim ID is generated six months before the Date of Retirement in the case of Superannuation. It allows the nodal office or the subscriber to make any system-wide adjustments (such as date of birth, address, etc.) up until the day before the retirement date.