It’s good to include the National Pension System (NPS) in your retirement portfolio, but you should also know the rules on how to exit it or seek an extension, and how that can affect withdrawals.
NPS subscribers can redeem and close their individual pension account in the normal course when they reach the prescribed age of 60 years, or on superannuation or retirement.
Subscribers who join NPS after 60 but before 65 years of age may exit on completion of three years from the date of opening the account.
Subscribers can make a premature exit from NPS—before superannuation or before the completion of the prescribed age limit for exit—provided they remained with NPS for at least 10 years.
However, subscribers who joined NPS after the age of 60 but before 65 are exceptions—for them, early exit will mean exiting before the completion of three years from the date of joining.
Subscribers who opt to exit early have to use at least 80% of the accumulated corpus to buy an annuity and withdraw the balance as lump sum.
In the event of the death of the subscriber, the entire amount accumulated is paid out to the nominee in a lump sum under the model for all citizens. The nominee(s) have the choice to buy any of the annuities being offered if they so desire.
In the case of the government model, 80% of the accumulated corpus has to be used to buy an annuity and the balance is paid out to the nominees or legal heirs.
Subscribers have the option to continue their individual subscription to NPS beyond the age of 60 up to the age of 70. They can exercise this option by making the request in writing at least 15 days before they become eligible for normal exit. Even if they do not give it in writing, it will be deemed to be done if the subscriber does not initiate the process to withdraw the accumulated pension. This does not apply to government and corporate models, where the intent to continue has to be given in writing.
Even after exercising the choice of continuing to contribute to NPS beyond the prescribed exit date, subscribers can exit at any point by registering a withdrawal request.
Subscribers who have completed the required term in NPS have to annuitize a minimum of 40% of the corpus as on that date. The balance can be withdrawn in a lump sum or in a phased manner till the age of 70. The balance left for phased withdrawal will be affected by fluctuation in the net asset values (NAVs).
If the subscriber chooses to withdraw the portion of the corpus in a phased manner, then a minimum of 10% of the balance has to be withdrawn each year till the age of 70. The amount remaining in the retirement account at age 70 has to be fully withdrawn.
The purchase of annuity too can be deferred for a maximum of three years from the date of regular exit. This request has to be registered in the CRA system at least 15 days prior to the designated date of exit.
Note that the option to defer lump sum withdrawal in a phased manner till the age of 70 and the purchase of annuity is not available to subscribers who have chosen to extend their period of contribution to NPS beyond the prescribed age of retirement.