New Delhi: Subscribers of National Pension System (NPS) will get to withdraw up to 25% from their pension fund accounts under certain circumstances, Pension Fund Regulatory and Development Authority, (PFRDA) said.

After 10 years as an NPS subscriber, you can make such partial withdrawals for big-ticket expenses like children’s marriage, higher education, construction or purchase of first house and treatment for critical illness for self, spouse, kids or dependant parents.

The regulations published on 8 June incorporate most of the proposals listed out in PFRDA’s draft guidelines issued early last year.

According to the guidelines, an investor can make only three withdrawals of up to 25% of the contribution each during the tenor and with a gap of five years between each. This gap, however, is not applicable for critical illnesses.

“Partial withdrawals give the flexibility to the subscribers and the limits ensure that the pension account is not wiped clean. This is good for the subscribers," said Sumit Shukla, chief executive officer of HDFC Pension Management Co. Ltd.

Being a long-term investment product to accumulate a retirement fund, NPS till now didn’t allow for any partial withdrawals; however, the PFRDA Act, 2013 made provisions for partial withdrawals to offer some kind of liquidity to the investors to meet urgent big tickets expenses. While the Act allowed withdrawals, the final guidelines on implementation with respect to NPS are being set by PFRDA.

An investor can exit NPS only after the age of 60, or in the case of corporate NPS, the retirement age defined by the employer.

At 60, the person can choose to annuitize the entire corpus or at least 40% of it and take the balance as a lump sum. Annuity is a pension product in which a person makes a lump sum payment, and gets periodic income later.

“The other positive for the customer is that those who don’t want to annuitize their corpus at 60 years of age can continue to contribute and stay invested in the NPS till 70 years of age. This means they can also make use of the extra tax deduction of 50,000 that NPS now enjoys," said Shukla.

If you wish to exit before 60, you will still have to annuitize at least 80% of the money, but in this case, you will be allowed to exit only after you have stayed in the scheme for at least 10 years.

Given that annuity is a long-term pension product, the minimum eligible age to buy an annuity is typically higher; so, even as NPS allows for early exits, you will still need to wait till you are eligible to buy an annuity with 80% of that corpus. “Typically, annuities are available after 25 to 30 years of age, whereas the entry age in NPS is 18 years. So, even if a subscriber wants to exit NPS, he will have to wait till he becomes eligible to annuitize his money," said Shukla.

The guidelines, however, make an exception for very low ticket accounts. According to the guidelines, in case the accumulated pension wealth of the subscriber is equal to or less than a sum of 1 lakh, the subscriber can withdraw the entire corpus without purchasing any annuity. You can read the guidelines at www.pfrda.org.in.

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