Learn About the Rules Regarding Exit From National Pension System

Investing for retirement is a long-term commitment and a very critical one too. At the time of investing, you want some clarity on the rules of exit from the scheme. The exit/withdrawal-related rules are contained in the PFRDA (Exits and Withdrawals under NPS) Regulations, 2015, as amended from time to time. This article explains the finer details regarding exit options from NPS to help you make an informed decision.

Rules regarding exit from NPS

The rules depend on the timing of exit and the subscriber’s status (government/ non-government). They are captured in the below tables for easy understanding:

Rules regarding payment of corpus (On-boarded NPS between 18-60 years)
Category  Government Sector  Non – Government Sector 
Premature Exit 

(Exit before 60 years/Superannuation) 

  • Corpus equal to or below INR 2.5 lacs: 100% lump sum is payable. 
  • Corpus is higher than INR 2.5 lacs: Min. 80% of total corpus to be annuitised. Balance is payable as a lump sum to the subscriber. 
  • Corpus equal to or below INR 2.5 lacs: 100% lump sum is payable. 
  • Corpus is higher than INR 2.5 lacs: Min. 80% of total corpus to be annuitised. Balance is payable as a lump sum to the subscriber.

(Note: This option can be availed if the person has been a subscriber for at least 10 years)

Normal exit 

(60 years or beyond) & Superannuation

  • Corpus equal to or below INR 5 lacs: 100% lump sum is payable. 
  • Corpus is higher than INR 5 lacs: Min. 40% of total corpus to be annuitised. Balance is payable as a lump sum to the subscriber. 
  • Corpus equal to or below INR 5 lacs: 100% lump sum is payable. 
  • Corpus is higher than INR 5 lacs: Min. 40% of total corpus to be annuitised. Balance is payable as a lump sum to the subscriber. 
Death 
  • Corpus equal to or below INR 5 lacs: 100% lump sum is payable. 
  • Corpus is higher than INR 5 lacs: 80% of the accumulated pension wealth has to be utilised to purchase Default Annuity (see note below) by dependents. The balance of 20% is paid as a lump sum to the balance nominee/legal heir. 
  • If none of the dependent family members (spouse, mother & father) is alive: 20% will be paid as a lump sum to the nominee/legal heir. The balance corpus, i.e., 80%, is payable to the surviving children of the subscriber or to the legal heirs.
The entire accumulated pension wealth of the subscriber is payable to the nominee or legal heirs. 

Note: Default Annuity Scheme has following features:

  • Annuity for life, of the subscriber and spouse, with a provision for return of purchase price
  • Upon the demise of such annuitants, the annuity is re-issued to the family members.
  • After the coverage of the family members, the purchase price shall be returned to the surviving children of the subscriber or the legal heirs as applicable.
Rules regarding payment of corpus (On-boarded NPS between 60-70 years)
Category  Non-Government Sector 
Premature Exit 

(exit before completion of 3 Years) 

  • If the corpus is equal to or below INR 2.5 lacs: 100% payable as a lump sum. 
  • If the corpus is higher than INR 2.5 lacs: At least 80% of the accumulated pension wealth must be utilised to purchase an annuity. Balance is payable as a lump sum. 
Normal exit 

(exit after completion of 3 Years) 

  • If the corpus is equal to or below INR 5 lacs: 100% payable as lumpsum
  • If the corpus is more than INR 5 lacs: At least 40% of the accumulated pension wealth of the subscriber has to be utilised for the purchase of an annuity. Balance is payable as a lump sum to the subscriber. 
Death of Subscriber  The entire accumulated pension wealth of the subscriber is payable to the nominee or legal heirs. 

Conclusion

Recent changes in the NPS exit rules to provide for lumpsum withdrawal will help in making NPS more accessible to specific sections of society. At the same time, the rule regarding the minimum annuity requirement helps NPS retain its character as a true blue retirement product. Investors can understand these provisions and accordingly decide to invest in this scheme from a long term perspective.
Plan your financial future using
Finbingo’s Wealth Builder Right Arrow