NPS Withdrawal Rule Change: Withdraw Full Contributions Without Annuity: Check Details

Here is a news for NPS subscribers looking to withdraw their corpus! In a notification, the Pension Fund Regulatory and Development Authority (PFRDA) has allowed subscribers to withdraw the entire accumulated pension wealth without purchasing annuity if the pension corpus is less than Rs 5 lakh.

At present, beneficiaries can withdraw up to Rs 2 lakh from their NPS account. Beyond this limit, the pensioners can withdraw 60% of the contributions. At least 40% of the contributions has to be mandatorily parked in government approved annuities, according to the current rule. The government-run investment scheme offers the subscribers the option to set the preferred allocation to different asset classes.

There are two kinds of NPS accounts Tier 1 and Tier 2. While the Tier 1 NPS account is strictly a pension account, the Tier 2 account is an investment account. At present, the returns of annuities average around 5.5%. With inflation and income tax on pension accumulation, the return for subscribers from annuities are often on the lower side. The increased threshold of Rs 5 lakh will offer better liquidity to a certain segment subscribers amid the second wave of the coronavirus pandemic.

“The new rules will allow them to invest these funds elsewhere where they can earn better returns. Depending on their risk profile they will invest in the option that suits them the most,” said Nitin Shahi, executive director of Findoc, financial services group. The pension regulator also stated that the premature withdrawal limit on a lumpsum basis for NPS has been increased to Rs 2.5 lakh from Rs 1 lakh.

The regulator also increased the maximum age of entry into the National Pension System (NPS) from 65 to 70. The exit age limit has also been extended to 75 years.

In NPS new rule, NPS subscribers are allowed to withdraw their money from the account once they complete three years under some specified circumstances. However, for premature withdrawal, the amount cannot exceed 25 per cent of contributions made by the NPS subscribers.