National Pension System (NPS) managed by the Pension Fund Regulatory and Development Authority (PFRDA) is a voluntary retirement scheme for individuals who want to get a decent pension after their retirement after attaining the age of 60 years. NPS offers three different types of exit options: Premature Exit/Voluntary Retirement, which allows subscribers to exit before 60 years/Retirement, Normal Exit, which allows subscribers who are 60 years or above/Superannuation Allows exit on death and allows exit on unexpected death, which allows subscribers to exit before normal exit/60 years of age/retirement. In an interview with Mint’s Vipul Das, Amit Sinha, Group Head, Social Security & Welfare, Proteus e-Governance Technologies Limited (formerly NSDL e-Governance Infrastructure Limited)Brief information about exit from NPS is provided. He has covered several Frequently Asked Questions (FAQs) about exiting NPS, which can make it easier for both new and existing subscribers to understand the exit rules between public and private sectors.
Q1. What are the forms available and documents required to process exit from NPS after attaining the age of 60 years? What is the deposit process, and what are the requirements for Tier 1 and Tier 2 accounts?
Subscribers will not have to wait till the age of 60 to start the exit process. This process starts six months before the subscriber attains the age of 60 years. Protean CRA sends alerts to the subscriber informing him about his upcoming superannuation, various options available at the age of 60, what to do if the subscriber decides to exit NPS and start pension . This gives the subscriber enough time. To prepare for his retirement.
NPS subscribers have the following options:
1. Subscriber can opt for lump sum withdrawal and annualization of balance amount. A subscriber has to annualize a minimum of 40% of the accumulated corpus and up to 60% of the corpus can be withdrawn as a lump sum. [Annuitization is the process of converting annuity (i.e. pension) investment into a series of periodic income payments under the National Pension System (NPS)],
2. Subscriber can choose to defer (or postpone) either lump sum withdrawal or annuity or both till the age of 75 years.
3. Lastly, the subscriber can choose to continue till the age of 75 years.
Further, though the default option is to annuity a minimum of 40% of the accumulated corpus and lumpsum withdrawal of the remaining 60% of the accumulated corpus, the NPS subscriber has the option of annuity up to 100% of the accumulated corpus thereby earning a higher pension for the subscriber.
Given the increased mortality rate in today’s times, a person (along with a spouse) is likely to have more than three decades of retirement life. For this purpose, and keeping the rate of inflation in mind, a large stable pension income is of utmost importance. Accordingly, I would like to reiterate that a subscriber opting for 100% annuity of accumulated corpus will be able to avail higher pension amount.
Another interesting aspect that we would like to highlight here is that in NPS, where the subscriber can choose his/her Pension Fund Manager (PFM) for the accumulation phase, the flexibility to choose the annuity is available even in the de-accumulation phase. Is. Service Provider (ASP) who will provide the annuity to the Subscriber.
The process of completing the de-accumulation stage (i.e. exit from NPS) is a seamless process and is done completely online in a paperless manner. Subscriber has to simply initiate an online exit request in the system, upload the scanned KYC documents and digitally sign the request. No physical documents are required to be submitted. This results in saving a lot of time and effort of the subscriber and the dependence on any intermediary is reduced to a great extent.
If the subscriber has an active Tier-2 account, the same gets automatically closed along with the Tier 1 account. No separate request is required for closure of Tier 2 account.
Q. 2 What are the benefits on exit?
Subscribers can enjoy tax benefits on exit from NPS. Lump sum withdrawal up to 60% of the total accumulated pension wealth is exempt from tax. Also, amount utilized for purchase of annuity (to receive pension) is exempt from tax, however, annuity amount withdrawn from time to time as pension is taxed as per the tax bracket of the individual goes.
Here, we would like to bring an interesting aspect regarding tax on exit from NPS. Usually, at the time of retirement, an individual has an inflow of money from various sources such as gratuity and other benefits. The sudden influx of more liquidity ‘Where to invest?’ may create confusion regarding Considering the age of investment in NPS has been extended from 60 years onwards till 75 years of age, an individual can park additional funds from various sources in NPS and enjoy tax benefits as per the tax bracket. There is no tax benefit for Tier 2 withdrawal.
Q3. Can I withdraw my accumulated pension amount completely without annuity?
NPS is a pension scheme where you deposit money during your working life and get pension from the accumulated corpus after the age of 60 years. To ensure that the subscriber gets adequate pension, one cannot withdraw the entire pension amount without annuity. As we mentioned above, a minimum of 40% of the corpus has to be used for annuity. However, if the accumulated pension wealth at the time of exit is up to Rs 5 lakh, the subscriber can withdraw the entire corpus.
Q4. What if one does not exit beyond the age of 60 years or superannuation? When will the withheld amount be settled?
The NPS account will remain active till the exit request is processed to withdraw the NPS corpus.
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