National Pension System (NPS) is one of the most popular tools for financial planning in India. It is a defined contribution scheme regulated by PFRDA. Initially, the scheme was launched for Government employees joining services on or after January 1, 2004, but subsequently extended to all citizens of India with an option of joining on a voluntary basis.
NPS subscribers are allotted a 12-digit unique Permanent Retirement Account Number (PRAN) under which all activities of the subscriber are recorded. PRAN can be ported from one employer to another.
Under NPS, subscribers are allowed to contribute to the fund over their working life. On exit, they are allowed to withdraw a certain percentage of the corpus as a lump sum and buy an annuity with the remaining amount to get a regular income in retirement years.
How much you can withdraw?
As per the NPS rules, 60 percent of the corpus can be withdrawn on retirement. No tax will be levied on this withdrawn amount. The subscriber is required to buy an annuity with the remaining 40 percent of the corpus.
Recently, the Pension Fund Regulatory and Development Authority (PFRDA) allowed subscribers to withdraw the entire amount if the total value of their corpus is up to up to Rs 5 lakh.
PFRDA’s decision to allow the full withdrawal is expected to benefit a section of the government sector and private sector subscribers who joined NPS late in their lives. The maximum entry age of NPS has also been increased to 70 years, while subscribers have been provided with the option of deferring their account up to the age of 75 years.
Main retirement vehicle
Experts suggest that subscribers can use NPS as their main retirement vehicle.
“National Pension System (NPS) is a government-initiated product with the sole objective of making retired persons financially self-dependent. It is one of the worlds cheapest products and at the same time, giving reasonably good returns. Further, as the subscriber is required to invest at least 40% of the accumulated wealth in buying annuity, the subscriber has assured pension monthly,” Sreekanth Nadella, CEO, KFin Technologies, told FE Online.
Earlier, full withdrawal was allowed only when the NPS corpus of the subscriber was up to Rs 2 lakh.