Launched by the Government of India in 2004, the National Pension System (NPS) is a defined contribution pension scheme introduced after the government decided to discontinue old pensions scheme.

NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and is available to individuals aged 18 to 65 years. Pension funds such as SBI Pension Fund, LIC Pension Fund, and UTI Retirement Solutions assist users in managing their NPS contributions.

NPS Withdrawal Rules

Partial Withdrawal

Users are eligible to request a partial withdrawal only after they have been subscribed to the NPS for a minimum of 3 years from their joining date. Withdrawals can be made up to 3 times during the entire tenure of the NPS account. At any given time, users can withdraw up to 25% of their own contributions, excluding any amounts contributed by their employer, if applicable. Additionally, between two partial withdrawals, users are permitted to withdraw up to 25% of their own contributions made since the last partial withdrawal.

Circumstances for Partial Withdrawal: Partial withdrawals from NPS can be made for various reasons, including the children’s — whether biological or legally adopted — higher education or marriage. Users may also withdraw funds for the purchase or construction of a residential house or flat in their name or jointly with a legally wedded spouse.

Medical treatment for specified illnesses requiring hospitalisation, whether for the user, their legally wedded spouse, children (including adopted), or dependent parents, is also a valid reason. Additionally, withdrawals can be used to cover medical and incidental expenses related to disability or incapacitation suffered by the user. Funds can be utilised for skill development, re-skilling, or other self-improvement activities as permitted by PFRDA, and for establishing a venture or start-up in line with PFRDA guidelines.

Withdrawal Process: Users can submit a withdrawal request with the required documents to the Point of Presence (POP) or nodal office for processing. If a user is ill, their family members may submit the request on their behalf.

Withdrawal After Retirement

A complete withdrawal is permitted if the corpus is ₹5 lakh or less. If the corpus exceeds ₹5 lakh, at least 40% must be utilised to purchase an annuity, while the remaining 60% can be withdrawn as a lump sum. In the case of death after the age of 60 or upon superannuation, the lump sum is paid to the nominees, who may opt for an annuity if they choose. However, for government employees, 60% of the corpus is paid as a lump sum to the nominees, while 40% is used to purchase a default annuity for the dependents.

Premature Withdrawal

For government sector employees, a complete withdrawal is allowed if the corpus is ₹2.5 lakh or less. For a corpus exceeding ₹2.5 lakh, at least 80% must be allocated to purchase an annuity, with the remaining 20% available as a lump sum.

For non-government sector employees, eligibility for premature withdrawal requires a minimum of 5 years of subscription. If the corpus is ₹2.5 lakh or less, a full withdrawal is permitted. For amounts greater than ₹2.5 lakh, at least 80% must be used to purchase an annuity, while the remaining 20% can be withdrawn as a lump sum.

Conclusion

The National Pension System stands out as a wise investment option, offering both tax benefits and flexibility to secure users’ financial future. Managed by a government body, NPS provides a reliable means for retirement savings. However, it’s crucial to be aware that NPS returns are influenced by market fluctuations, so a careful assessment of associated risks is necessary. Overall, if a user is seeking a dependable and tax-efficient investment with the potential for long-term, inflation-beating returns, NPS is a valuable choice.