PFRDA, the pension regulator, had come out with Exit and Withdrawals under NPS in May 2015 and provided much needed clarity. The regulations made provisions for partial withdrawals from NPS and provided a few more options at the time of exit from NPS.
At the time of exit from the NPS system, all NPS subscribers (both Government and All Citizens Model Subscribers) have the following liberty:
- To defer the purchase of annuity by up to a maximum period of 3 years from the date of superannuation (Government subscribers). In case of other subscribers (all citizens model), annuity purchase can be deferred by up to 3 years from the date of attainment of age of 60 or age of superannuation/retirement, as the case may be.
- Withdrawal of lump sum amount can be made in up to 10 annual installments (not necessarily equal) till the age of 70.
You can use these regulations smartly to reduce your tax liability post retirement. In the following post, I have discussed how to reduce your tax liability using provisions on NPS.
Must Read: Tax Benefits and Tax Treatment at Maturity
Must Read: Revised NPS Exit and Withdrawals Rules
PFRDA has come out with a circular dated July 27, 2016 building on the Exit and Withdrawal Regulations issued in May, 2015. The circular provides additional clarity on the continuation of contributions beyond the age of 60/superannuation.
Do note this circular applies to only NPS subscribers under All-Citizens model, including corporate sector NPS subscribers. The circular is NOT applicable to Government NPS subscribers.
Let’s look at the issues that PFRDA seeks to address through this circular.
Can a subscriber contribute to NPS beyond the age of 60/superannuation?
Yes, he can. Do note this is applicable only to NPS subscribers under All-Citizens model including Corporate NPS subscribers.
If a subscriber desires to contribute beyond the age of 60 or superannuation (retirement), he must intimate his intention in writing to Central Record-keeping agency (CRA, NSDL) at least 15 days before the attainment of 60 years of age or the age of superannuation.
You can continue to contribute till the age of 70.
This is not applicable to Government NPS subscribers. Government NPS subscribers cannot contribute beyond the age of superannuation.
Which corpus to consider for purchase of annuity?
As per NPS rules, you must utilize at least 40% of the accumulated corpus to purchase annuity.
If the subscriber chooses to extend NPS account beyond the age of 60, what corpus will be considered for purchase of annuity?
Corpus at the time you turn 60/attain superannuation or corpus at the time of actual exit from the system?
For instance, if you choose to continue NPS contribution till the age of 65 and exit at the same age, which corpus shall be considered for the mandatory purchase of annuity? Corpus at the age of 60 or corpus at the time of exit from NPS?
PFRDA has clarified that the mandatory purchase clause applies at the time of final exit from NPS system (and not the age of 60 or superannuation).
Hence, at least 40% of the accumulated corpus at the time of exit from NPS system must be used to purchase annuity. This will also include contribution you make after the age of 60/superannuation and income earned on such contributions.
Can I continue my Tier II NPS account beyond the age of 60?
PFRDA has clarified Tier II is linked to Tier I account. A Tier II account can continue as long as Tier I account exists. So, you can continue your Tier II NPS account and make contributions beyond the age of 60/retirement as long as your Tier I NPS exists.
Must Read: Should you invest in Tier II NPS account?
Will some features be withdrawn if I continue my NPS account beyond the age of 60?
Even after you choose to continue your NPS account beyond the age of 60/superannuation, you will continue to enjoy facilities such as access to CRA system, switching of pension fund managers, investment choices (E/C/G).
If I extend my NPS account, when can I exit?
Once you extend the NPS account and continue contributions beyond the age of 60/ superannuation, you can exit the NPS system any time after giving due notice.
This is irrespective of the period of contribution indicated by you while submitting your request to continue to contribute to NPS account.
Can I defer purchase of annuity once I extend NPS account beyond 60?
There is provision under which you can postpone your decision to purchase an annuity plan by up to 3 years after the age of 60 or age of superannuation, as the case may be.
However, if you have chosen to continue to contribute to your NPS account beyond the age of 60/superannuation, you will no longer enjoy this facility i.e. you will have to purchase annuity at the time of exit from NPS. Thus, facility of deferment of annuity purchase by up to 3 years will not be available if you extend your NPS account.
This is a minor drawback as you cannot wait for better annuity rates if the annuity rates are low at the time of your exit from NPS.
Do note only deferment of purchase of annuity is not permitted if you continue contributions after the age of 60/superannuation. As I understand, you still have the discretion to withdraw lump sum in up to 10 annual installments till the age of 70.
For instance, if you continue your NPS account, make contributions till the age of 65 and exit thereafter, you will be forced to purchase annuity straightaway (at the age of 65). However, you can still defer withdrawal of lump sum. You can withdraw in up to 5 annual installments till the age of 70.
Do I get tax benefits for contribution beyond the age of 60?
You will get tax benefits for contributions to NPS account even after the age of 60/superannuation. The tax benefits are defined under Section 80CCD of the Income Tax Act.
Do note contributions to only Tier I NPS account are eligible to tax benefits under Section 80CCD.
What do you think? Does this PFRDA circular sweeten the NPS deal for you?