NPS Exit – All You Need to Know

National Pension System is a government-backed voluntary contribution-based pension scheme that allows you to invest a small amount periodically and secure your post-retirement life. One of NPS investment's significant features is that it gives you market-linked returns and the flexibility to choose your own fund allocation in different asset classes.Launched in 2004, NPS was initially offered only to government employees to encourage them to save towards their retirement. Later, in 2009, the system was extended to all. Once you start an NPS account, you must continue to make your contribution until you reach the retirement age or 60 years.After you retire, you can exit from the NPS and withdraw the funds from the accumulated corpus. However, there are specific rules for the exit that you must follow. Before we know more about the rules, let us first understand what NPS exit is.

According to NSDL (National Securities Depositories Ltd), NPS Exit is defined as closure of an individual's NPS account. And, as per the PFRDA (Pension Fund Regulatory and Development Authority) rules, a subscriber can exit NPS and close their account under three circumstances – Normal Exit Here, the subscriber attains 60 years or retires from his/her employment as per the employment terms.

• Premature Exit

Here the subscriber chooses to close their account voluntarily.

• Death of the subscriber

PFRDA defines specific NPS exit rules for different types of exit.

Normal Exit

The normal exit is when you close the NPS account after you retire from your employment or attain 60 years of age. The exit rules include:

• You can withdraw up to 60% of the accumulated amount in your NPS account in lump sum
• You must mandatorily use the balance 40% of the funds to purchase an annuity
• If the accumulated wealth in your NPS account is equal to or less than Rs.2 lakh, then you can withdraw the full amount without the need to buy an annuity.
• The amount you withdraw from your NPS account and the amount used to purchase an annuity is fully tax exempted.

Upon exiting the NPS after your retirement, you have the following options:

• You can continue your NPS account and contribute towards the pension corpus until you reach 70 years or for ten more years from the date of retirement, whichever is earlier.
• You can stay invested in NPS for up to 70 years or ten years from retirement date without making any further contributions towards your pension account.
• You can defer or delay the annuity purchase for a maximum of three years from the date of attaining 60 years or retirement from employment.
• You can defer the lump sum withdrawal and stay invested in NPS until you reach 70 years.
• You can withdraw the corpus in instalments (up to 10 instalments are permitted) post-retirement until you attain 70 years. However, before you opt for a phased withdrawal, you must purchase the annuity.

Premature Exit

The premature exit is when you choose to close your NPS account before the end of the actual investment term, i.e., you attain 60 years or retire from employment. The exit rules include:

• You can exit from NPS prematurely only if you have continued to contribute towards the NPS account for at least ten years.
• If you choose to exit NPS prematurely, as per the rules, you can withdraw only 20% of the accumulated funds in lumpsum.
• You must mandatorily use the remaining 80% of the funds to buy an annuity.
• The amount withdrawn and the amount used to buy purchase annuity are tax-exempt.

NPS Exit upon death

In the event of your untimely and unfortunate death before the NPS term, the accumulated corpus in your NPS account is paid to the nominee. And the amount received by them is tax-exempt.

Investing in NPS is a great way to build a corpus for your future. You can save a nominal periodically throughout your working years and accumulate a significant retirement fund for your old age. Remember, NPS offers market-linked returns on your investment, which is higher than the returns provided by the traditional investment options like bank fixed deposit and savings account.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.