In this post, let’s look at the latest exit and withdrawal rules for Government Sector NPS (for central and state government employees) and All Citizens model/Corporate Sector NPS (for private sector employees/self-employed).
Latest NPS Withdrawal Rules
Partial withdrawal up to 25% of own contribution (excluding the contribution from the employer) is allowed after
10 3 years for defined expenses. Defined expenses can be:
- Child higher education or marriage
- Construction/purchase of the first house
- For treatment of 13 specified illnesses and any accidents or diseases of life-threatening nature for self, spouse, children and dependent parents.
- To start a new business (added in 2018)
Please note contribution means only the principal amount i.e. your subscription amount (and not the returns on that corpus). Maximum three withdrawals are allowed during the
with a minimum gap of 5 years between each withdrawal. The restriction on time gap between withdrawals is not applicable in case of specified illnesses.
Specified illnesses are cancer, kidney failure (end state renal failure, primary pulmonary arterial hypertension, multiple sclerosis, major organ transplant, coronary artery bypass graft, aorta graft surgery, heart value surgery, stroke, myocardial infarction, coma, total blindness and paralysis.
Latest NPS Exit Rules
The rules for Corporate Sector NPS and All Citizens model NPS are same. Clearly, for All-Citizen model subscribers, there is no concept of superannuation.
You can see that the exit rules for Government and private sectors employees/citizens model subscribers are slightly different.
Please note in case of death of subscriber after the purchase of annuity plan, the payout will be governed as per the annuity contract. NPS or PFRDA will have no role to play.
For private sector employees/ self-employed, the exit rules are silent on treatment if the subscriber dies after retirement (and before the purchase of annuity). As I understand, in such a case, the entire wealth can be withdrawn as lump sum by the nominee or legal heir. There will be no mandatory purchase of an annuity plan. In case the subscriber dies before the withdrawal of lumpsum amount, the amount will have to be necessarily withdrawn by the nominee/legal heir.
The original NPS exit and withdrawal rules were released in May 2015. These regulations were followed by multiple amendments in 2017. I have provided all the links at the end of the post.
There is an additional option for private NPS subscribers (All Citizens NPS). They can continue contributing to their NPS account even until the age of 70.
This option was not available earlier. You could contribute only till the age of 60.
In fact, now, you can join NPS till the age of 65 under All Citizens model. Note this option is not available to Government sector subscribers.
You can read very crisp FAQs from PFRDA (dated October 9, 2017)about deferral of lumpsum withdrawal and annuity purchase, the extension of NPS account beyond the age of 60 and treatment of NPS Tier-II account at the time of exit from NPS.
How do the partial withdrawal and exit rules benefit investors?
There is flexibility available to investors that they can use these funds in case of an emergency or an important life goal. PFRDA has capped the number/amount of withdrawals and limited the use of funds for specific purposes. Therefore, the primary goal of NPS as a retirement product remains intact.
Additionally, there is a provision for proper exit (not premature) before the age of 60. So, if the retirement age at some organisation is less than 60 (say 58 years), the NPS subscriber can stop contributing at 58 and even opt for annuity/pension from the age of 58. Earlier, this was not possible.
Every subscriber had to keep contributing until the age of 60. Any exit earlier than the age of 60 would have been considered premature exit and withdrawal rules had to be applied accordingly (mandated purchase of annuity/pension for 80% of the amount). The changes do away with this restriction.
What are the documents required for Partial Withdrawal from NPS?
PFRDA, in a circular dated October 24, 2016, has listed out the documents required for partial withdrawal.
For Higher Education: Copy of Admission letter of the Institute along with the fee schedule
For the marriage of children: Self Declaration. The format for self-declaration is provided in the circular.
For purchase or construction of a residential house or flat in his or her own name or in a joint name with legally wedded spouse: Photocopy of title documents of the property, Approved plan and self-declaration OR Loan offer letter from a housing finance company or a bank and self-declaration. The format for self-declaration is provided in the circular.
For treatment of specified illnesses of the subscriber, his legally wedded spouse, children, including a legally adopted child or dependent parents: Certificate from a doctor.
How do I exit NPS Account?
In case you want to exit NPS (pre-mature or regular exit), there is a different process to be followed. I have written a separate post on this topic.
Old Exit and Withdrawal rules for NPS (Till early 2015)
- Upon attainment of 60 years: At least 40% of the accumulated wealth in the NPS account needs to be utilized for the purchase of annuity/pension. Remaining 60% can be withdrawn as lump sum. The subscriber has an option to defer the withdrawal of lump sum amount until the age of 70. At the age of 70, any balance in the account will be paid out to the investor as lump sum. There is no compulsion to purchase an annuity plan in case the total accumulated wealth is less than Rs 2 lacs.
- Before attainment of 60 years: At least 80% of the accumulated wealth in the account needs to be utilized for the purchase of an annuity plan. The balance can be withdrawn as lump sum.
- Death of the subscriber: Entire accumulated wealth to be paid to the nominee/legal heir. No option for the purchase of an annuity plan.
- Deferment of Annuity: A subscriber has an option an defer mandatory annuity purchase (as mentioned in (a) and (b)) by up to 3 years
No partial withdrawal from NPS was permitted before the age of 60.
Problems with old rules
The common refrain was that investors/subscribers did not have the option of accessing these funds even in cases of emergency.
An additional concern was that a number of organisations had retirement age lower than 60. Hence, if the retirement age was 58, the subscriber would have had to contribute for 2 more years to be eligible for a normal exit. In such a case, pension/annuity would have begun only at the age of 60. If such a subscriber exited the scheme at 58, this would have been considered early exit (before attainment of 60 years) and corresponding rules would have applied.
The post was first published on July 28, 2015 and has been updated since.