Cabinet expected to change NPS withdrawal norms

The Cabinet is likely to approve tomorrow a proposal to change withdrawal rules for the New Pension Scheme (NPS).

As per the proposal, NPS subscribers will be allowed to withdraw their entire retirement fund in case the amount is Rs 2 lakh or less, according to sources. For availing of this, subscribers will have to exercise opt-out option.

At present, over 4,400 accounts have accumulated amounts of Rs 2 lakh or less. However, this move will not benefit those subscribers who opened their accounts under the Swavalamban scheme.

Subscribers can opt to exit either at or after the age of 60. From March 2013, they were allowed to stay invested till the age of 70 with some conditions such as no contribution or part-withdrawal between the age of 60 and 70.

At the time of exit, 60% of the total amount is given as lumpsum, while 40% is used to purchase an annuity, which provides lifetime pension to an employee and his dependents like parents or spouse at the time of retirement.

The move has been contemplated because the accumulated fund of less Rs 2 lakh is found to be insufficient for buying a decent annuity scheme for subscribers.

NPS is a contributory scheme, which was made mandatory for Union Government employees (except those in the Armed Forces) joining on or after January 1, 2004.

Under the scheme, an employee contributes 10% of his or her salary and dearness allowance and an equal contribution is made by the Union Government. However, the government does not contribute for subscribers who are not on its rolls.

Around 27 lakh central and state government employees are covered under the NPS.