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Tuesday, June 16, 2015

PFRDA allows partial withdrawal in NPS up to 25% after 10 years

The pension fund regulator has allowed partial withdrawal of up to 25% after 10 years of contribution.

PFRDA has issued guidelines in which it has allowed partial withdrawal of up to 25% from the accumulated corpus to NPS subscribers. This option is allowed for subscribers having contribution in account for at least 10 years. However, NPS subscribers can only withdraw for higher education or marriage of their children, construction or purchase of first house and treatment of specific ailments like cancer, kidney failure, paralysis etc.

PFRDA has stipulated a gap of minimum five years between withdrawals. Also the maximum number of withdrawals allowed is three. However, there is no such limit if withdrawal is made for illness.

In another change, PFRDA has allowed corporate NPS subscribers or subscribers under direct contribution plan (employer-employee contribution model) to continue with their NPS account till 70 years of age. However, such subscribers will have to annuitize a minimum of 40% at superannuation or retirement age. Such annuities can be deferred for three years. Both these initiatives will help subscribers grow their retirement corpus by keeping them invested. 

Also, PFRDA has exempted subscribers having maturity corpus of Rs.2 lakh or less from buying an annuity. Such subscribers can now withdraw the entire amount.

Hitherto, NPS had three exit options which were conditional on attaining normal superannuation or 60 years of age. Under first option, 60% of accumulated corpus can be withdrawn as a lump sum payment and annuitizes the rest for monthly payouts. Similarly, if a subscriber exits before attaining the age of 60 years, 80% of accumulated corpus is annuitized. In case of death, the entire accumulated corpus is paid to the nominee or legal heir of the subscriber.

Currently, EPFO allows partial withdrawals. However, since there is no such limit on withdrawals, many people pull out their money from their EPFO account. As a result, many subscribers are left with a small corpus for their post-retirement days defeating the very purpose of EPFO.
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