In this post, let’s take a look at the latest exit and exit rules for the government sector NPS (for central and state government employees) and the All Citizens / Corporate Sector NPS (for private sector employees / self-employed).
Latest NPS withdrawal rules
Partial withdrawal of up to 25% of the personal contribution (without employer’s contribution) is permitted after this
10 3 years for defined expenses. Defined outputs can be:
- Child higher education or marriage
- Construction / purchase of the first house
- Used to treat 13 specific illnesses and accidents or life threatening illnesses for yourself, spouse, children and dependent parents.
- To start a new business (added in 2018)
Please note that the contribution only means the principal amount, ie your subscription amount (and not the income from this corpus). A maximum of three payouts are allowed during the
with a minimum interval of 5 years between each withdrawal. The limitation of the time interval between the payments does not apply in the case of certain illnesses.
Specific diseases include cancer, kidney failure (end-stage renal failure, primary pulmonary arterial hypertension, multiple sclerosis, large organ transplant, coronary artery bypass surgery, aortic transplant, cardiac output surgery, stroke, myocardial infarction, coma, total blindness, and paralysis.
Latest NPS exit rules
The rules for the Corporate Sector NPS and the All Citizens Model NPS are the same. There is clearly no concept of pension insurance for subscribers to the all-citizen model.
You can see that the exit rules for employee / citizen models in the public sector and the private sector are slightly different.
Please note that in the event of the death of the subscriber after purchasing the pension plan, the payout will be governed by the pension contract. NPS or PFRDA do not matter.
For private sector workers / self-employed, the exit rules do not include treatment if the subscriber dies after retirement (and before the pension purchase). As far as I know, in such a case the entire assets can be withdrawn as capital from the proxy or legal heir. There will be no compulsory purchase of a retirement plan. If the subscriber dies before the lump sum is paid out, the amount must be collected by the nominee / legal heir.
The original NPS exit and withdrawal rules were published in May 2015. Several changes followed these regulations in 2017. I’ve provided all the links at the bottom of the post.
There is an additional option for private NPS (All Citizens NPS) subscribers. You can continue to fund your NPS account until you are 70 years old.
This option was not previously available. You can only contribute up to the age of 60.
In fact, you can now join NPS under the All Citizens model up to the age of 65. Note that this option is not available to government subscribers.
You can get very crisp FAQs from PFRDA (dated October 9, 2017) about postponing the capital withdrawal and annuity purchase, extending the NPS account beyond the age of 60, and handling the NPS Level II account at the time of exit read from the NPS.
How do investors benefit from the partial withdrawal and exit rules?
Investors have the flexibility to use these funds in an emergency or for an important life goal. PFRDA has limited the number / amount of withdrawals and restricted the use of funds for certain purposes. Hence, the primary goal of NPS as a retirement product remains intact.
In addition, there is a provision for an orderly (not premature) exit before the age of 60. So if the retirement age in an organization is below 60 (e.g. 58), the NPS subscriber can quit at 58 and even opt for an annuity / pension from age 58. In the past this was not possible.
Every subscriber had to pay contributions up to the age of 60. A premature exit before the age of 60 would have been assessed as an early exit and the corresponding withdrawal regulations had to be applied (pension obligation for 80% of the amount). The changes remove this restriction.
What documents are required to partially withdraw from the NPS?
In a circular dated October 24, 2016, PFRDA listed the documents required for the partial withdrawal.
For higher education: Copy of the institute’s notification of admission with the fee schedule
For the marriage of children: Self-declaration. The format for the self-declaration can be found in the circular.
For buying or building a house or apartment in your own name or in the common name of the lawful spouse: photocopy of property ownership documents, approved plan and self-declaration OR loan offer letter from a housing finance company or bank and self-declaration. The format for the self-declaration can be found in the circular.
Used to treat certain diseases of the subscriber, their legal wedded spouse, children, including a legally adopted child, or dependent parents: medical certificate
How do I terminate the NPS account?
If you want to end NPS (early or regular exit), another process must be followed. I wrote a separate article on this topic.
NPS Leaving and Withdrawal Regulations, 2015
NPS Exit and Withdrawal Policy, First Amendment, 2017
NPS Exit and Withdrawal Policy, Second Amendment, 2017
NPS Exit and Withdrawal Policy, Third Amendment, 2017
Old exit and payout rules for NPS (until early 2015)
- At the age of 60: At least 40% of the accumulated assets in the NPS account must be used for the acquisition of pensions / annuities. The remaining 60% can be withdrawn as capital. The subscriber has the option of deferring the payment of the lump sum up to the age of 70. At the age of 70, any credit is paid out to the investor as a lump sum. There is no compulsion to purchase an annuity plan if the total accumulated assets are less than Rs 2 lacs.
- Before reaching 60 years of age: At least 80% of the accumulated assets in the account must be used to purchase a retirement plan. The remaining amount can be drawn as a lump sum.
- Death of Subscriber: All of the accumulated assets are to be paid out to the nominee / legal heir. No option to purchase a retirement plan.
- Postponement of the annuity: A subscriber has the option of postponing the mandatory annuity purchase (as mentioned in (a) and (b)) for up to 3 years
Partial withdrawal from NPS was not allowed before age 60.
Problems with old rules
It was common for investors / subscribers not to have access to these funds even in an emergency.
Another concern was that a number of organizations had retired under 60 years of age. With a retirement age of 58 years, the subscriber would have had to pay contributions for another 2 years in order to enable normal exit. In such a case, the pension would not have started until the age of 60. If such a subscriber had left the system at the age of 58, this would have been assessed as an early exit (before the age of 60) and corresponding regulations would have been made.
The post was first published on July 28, 2015 and has been updated since then.