National Pension System (NPS) is one of the popular investment plans for retirement corpus generation. While a mutual fund investment too is one of the common financial options that delivers inflation-beating returns for meeting post retirement expenditures, NPS has an edge over it on grounds of security and stability of investments. However, like any other investment instruments, it comes with certain conditions on premature withdrawal or exit.
As per the new premature NPS exit regulation of the PFRDA (Pension Fund Regulatory & Development Authority), you can get just 20 percent of your accumulated fund in lumpsum form while the rest of the amount is required to be used for purchasing annuity. The 80:20 rule for NPS premature exit is applicable whether you belong to the non-government or government sector between the age of 18 and 60 years. However, note that in the non-government sector, you must be a subscriber for ten years. As per the PFRDA (withdrawal and exit amendment) regulations of 2021, the provisions linked with withdrawal of lumpsum amount were modified in favor of the investors to avail most out of it. As per the provision, if the lump sum corpus is equivalent to or less than Rs. 2.50 lakh, you can withdraw the full amount in lump sum form.
Normal exit from the NPS is permitted on attaining the age of sixty or above. Thus, premature exit regulations will apply to anyone looking to quit before sixty years of age. In the case of normal exit, the entire amount in the lump sum form can be withdrawn if the overall corpus is below or equivalent to Rs. 5 lakh. If the overall corpus is more than Rs. 5 lakh, at least 40 percent of the accumulated corpus must be used to buy annuity and the remaining 60 percent can be withdrawn in lump sum form.
Rule for lump sum corpus withdrawal on NPS investment
| Category | Lump sum payment limit (in lakh) | Government sector | Non-Government sector |
| Premature withdrawal
(Withdrawal before 60 years of age)
|
2.50 | · If the corpus is equivalent or below Rs. 2.50 lakh then lump sum withdrawal is allowed.
· In case the corpus is over Rs. 2.50 lakh, at least 80 percent of the accumulated corpus must be used for purchasing annuity. The rest of the 20 percent is allowed for lump sum withdrawal. |
· Must be a subscriber for ten years
· Lump sum amount can be withdrawn if the corpus is equivalent or less than Rs. 2.50 lakh. · In case the corpus surpasses the Rs. 2.50 lakh limit, at least 80 percent of the corpus must be used to buy annuity. Balance can be withdrawn as a lump sum. |
| Normal exit rule (60 years or above) | 5.00 | · Can withdraw lump sum amount if the corpus is less than or equal to Rs. 5 lakhs.
· In case the corpus is over 5 lakhs, at least 40 percent of the corpus must be used to buy annuity. Remaining 60 percent can be withdrawn as a lump sum form. |
· Withdrawal of lump sum is permitted if the overall corpus is equal or less than Rs. 5 lakh.
· In case the corpus is over Rs. 5 lakh, at least 40 percent of the corpus must be used to buy annuity. Balance corpus can be withdrawn in lump sum form. |
National Pension System exit rule in case of a subscriber’s death
In the situation of your unexpected demise, the whole accumulated corpus in NPS will be received by your legal heir or nominee if you belong to the non-government sector. However, in case you belong to the government sector, the lump sum amount can be received by your legal heir or nominee if your corpus is equal or less than Rs. 5 lakh. In case the overall corpus is over Rs. 5 lakh, at least 80 percent of your accumulated wealth must be used to buy default annuity by your dependents and the remaining 20 percent can be received in lump sum form by your nominee or legal heir.