There are multiple National Pension scheme or NPS withdrawal options. All the NPS withdrawal options are subject to certain conditions. The category wise NPS withdrawal options are discussed below.
Categories of NPS withdrawal options
| Category | Government Employee | Non-Government Employee |
| 1) Premature or on voluntary retirement. | ||
| This option is triggered when an investor decide to withdraw before attaining 60 years of age. If the investor is a government employee, 100% NPS withdrawal is allowed provided the corpus is equal to or below ₹2.5 lakh. If the corpus is higher than ₹2.5 lakh, then at least 80% of the corpus has to be utilised for purchase of an Annuity. The balance 20% is paid as lumpsum. Subscribers can opt and are encouraged to continue in NPS under the All Citizens Model post carrying out Inter Sector Shifting (ISS). | If the employee is non-government sector, minimum 5 years subscription is mandatory. If the corpus is less than ₹2.5 lakh 100% withdrawal is permitted. If the corpus is more than ₹2.5 Lakh, at least 80% of the accumulated pension wealth of the subscriber has to be utilized for the purchase of an Annuity, and the balance 20% is paid as a lump sum to the subscriber.
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| 2) Normal exit. | ||
| A subscriber is allowed to withdraw the deposited amount on attaining 60 years or beyond /Superannuation. If the corpus is below ₹5 lakh, 100% withdrawal is permitted. If the corpus is more than ₹5 lakh, at least 40% of the corpus has to be utilised to buy an annuity. The balance 60% will be paid as lumpsum. In case of death after 60 years of age the same rule is applied. However, payment is made to dependent. | The rule is same for non-government employees. However, in case of death after 60 years, the payment is made to nominee. | |
| 3) Unfortunate Death before normal exit / 60 years or Superannuation | ||
| In such situation 100% withdrawal is allowed to nominee/legal heir if the corpus is equal or less than ₹5 lakh. The nominee may opt for annuity. For corpus more than ₹5 lakh, at least 80% of the corpus has to be utilised for purchase of annuity by dependent and balance 20% is paid in lumpsum to nominee/legal heir.
If dependent (spouse, mother & father are not alive, the 80% of the corpus has to be returned to surviving children and in absence of children, to the legal heir. In case of death of NPS Subscriber post payment of the lump sum but annuity not issued, then – Default annuity is to be bought by the dependents in the case of Govt sector. If none of the dependent family members (spouse, mother & father) are alive, the Corpus has to be returned to the surviving children of the Subscriber and in the absence of children, to the legal heirs. |
In case of non-government employee, the entire accumulated corpus is paid to nominee or legal heirs. The nominees may choose to buy an annuity, if desire.
For the Non-Govt sector, annuity as per the choice is to be availed by spouse/dependents. Complete (100%) lump sum withdrawal or annuity or lump sum withdrawal & annuity as per the choice is to be availed by spouse/dependents.
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| 4) Exit & withdrawal due to disability and in-capacitation | ||
| If a Government employee is discharged from service on account of invalidation or disability, it will be treated as normal superannuation. The withdrawal will be permitted as in normal exit.
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In case non-Government employee, it will be treated as normal superannuation if a Government surgeon or Doctor (treating such disability) certify that a) the employee is not able to work for the remaining period of the life, and b) percentage of disability is more than 75%. | |
It is not necessary to exercise NPS withdrawal on superannuation or otherwise. NPS has also give provision for deferment or continuation under certain circumstances unlike old pension scheme.
Continuation option
- If the Subscriber after attaining the age of 60 years/Superannuation has not initiated an exit request or has not exercised the option of continuation under NPS, then Subscriber shall be automatically continued under NPS till he/she attains the age of 75 years, as if he/she has exercised the option of Continuation. In the case of Corporate Subscribers, the Subscriber shall be automatically continued under NPS till he/she attains the age of 75 years, after 90 days of superannuation.
- Subscribers can opt to continue in NPS till 75 years of age and also deposit contributions to avail exclusive tax benefits.
- All the facilities and options of a normal NPS account like access to the CRA system, an option to switch fund managers and assets class, etc. provided.
- Subscribers can exit from NPS and start pension anytime during the period of continuation.
Deferment of NPS withdrawal
- Subscribers can defer their withdrawal with multiple options
- Defer only Lump sum withdrawal
- Defer only Annuity
- Defer both
- Subscribers can opt to defer the lump sum for up to 10 years.
- An annuity can be deferred for 3 years.
During this phased NPS withdrawal period, no fresh contributions are allowed in Tier 1 account.
The individual can opt for NPS withdrawal of a lump-sum amount in a phased manner (up to 10 instalments) over the period from 60 years (or any other retirement age as stated by the employer) to 70 years. However, the subscriber will have to avail annuity before the phased NPS withdrawal.
Systematic Lump Sum Withdrawal (SLW)
The Systematic Lump Sum Withdrawal (SLW) is applicable for deferred withdrawal post 60 years of retirement.
Currently, the Subscriber has to initiate the withdrawal request each time he or she wishes to withdraw and the request has to be authorized as the case may be.
PFRDA proposes that the lump sum can be paid systematically on a periodical basis viz monthly, quarterly, half-yearly, or annually for a period until the age of 75 in an automated manner with a one-time request. This will apply to both Tier I and II account. SLW can be availed in Tier II account even before attaining 60 years. Once SLW is set withdrawal in part or whole will not be allowed.
Advantages of SLW
- It will ensure a periodic payout to the subscriber to meet his/her requirements. Subscriber can plan accordingly.
- Undrawn amount will remain invested as per NPS norms.
- SLW is tax free being part of lump sum 60% withdrawal.
- It reduces risk of misuse on one time withdrawal.
Disadvantages of SLW
- Fresh contribution not allowed in tier I account SLW period.
- Partial withdrawal is not allowed during SLW period.
- Wrong choice of asset class may affect value of SLW
It is in proposal stage with PFRDA as of now. Once decided to implement, detail notification will be issued.
I hope the article will help you understand NPS withdrawal options and plan accordingly. If you need any clarification, let me know in the comments.