Now, every NPS subscriber will have to choose between lump sum amount or systematic withdrawal at the time of retirement (at age 60).
After retirement, everyone’s wish is to enjoy a better life without any stress. For this, people save for retirement by investing in different schemes. Saving for retirement in the long term is an important part of financial planning. But during this time, such situations may arise when you may need money.
Like the Employees Provident Fund and Public Provident Fund, the National Pension System (NPS) also does not allow premature withdrawal. However, keeping in mind the circumstances where it becomes necessary to withdraw money from retirement savings, a provision has been made under these schemes which allows premature withdrawal. During this period a large amount remains intact.
Partial withdrawal
Under NPS, you can open two accounts, which include Tier-I and Tier-II. Tier-II is a savings account and has no withdrawal restrictions. Tier-I is known as the main retirement account. You can make partial withdrawals from this account before retirement, but this is subject to certain restrictions.
After completion of three years, you can withdraw 25 percent of your contribution deposited in the account. During this period, you cannot withdraw your employer’s contribution (if any) and the returns earned from the contribution.
Additionally, you can do this only in select circumstances. These include treatment of illness, disability, raising money for children’s education or marriage, buying property or starting a new venture. You can make maximum withdrawals only three times during the entire investment period.
Premature withdrawal
If you wish, you can choose the option to completely exit NPS even before the age of 60 years. But it has to pay a price. One thing is that you cannot make such withdrawal before completion of five years. If you have started investing in NPS after the age of 60 years, then this period is very less i.e. three years.
In case of premature withdrawal, you can withdraw up to 20 per cent of the amount deposited in the account in lump sum. But you will have to compulsorily use the remaining 80 percent amount to buy annual plans from listed life insurance companies. However, if the total amount in your account is less than Rs 2.5 lakh, then NPS will give you the entire amount in lump sum.
Mature withdrawal
You can make final withdrawal after turning 60 years of age. You can withdraw 60 percent of the total amount in lump sum, which will be tax-free. However, you will have to mandatorily convert the remaining 40 per cent into annuities and this income will be taxable at the slab rate applicable to you. If the total amount in your account is less than Rs 5 lakh, then the entire lump sum amount will be given to you.
Systematic Withdrawal
This option has been introduced by the Pension Fund Regulatory and Development Authority in 2023. It allows you to withdraw up to 60 per cent of the lump sum amount not in one go but in a phased manner through the Systematic Lump-Sum Withdrawal (SLW) facility. This is automated systematic withdrawal.
Now, every NPS subscriber will have to choose between a lump sum amount or systematic withdrawal at the time of retirement (at the age of 60 years).
Under Systematic Withdrawal, you can choose to receive income in the form of monthly, quarterly, half-yearly and annually till the age of 75 years. The regulator has not yet allowed systematic withdrawal instead of annuitization. Therefore, 40 percent of the amount will still have to be compulsorily converted into annuities, i.e. pension income.
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