NPS proposes to relax no-withdrawal rule

Up to 25% of contribution can be taken out, for specified purposes and with time limits

The National Pension System (NPS), begun 10 years earlier, was introduced to provide salaried employees a pension or regular cash flow in their post-retirement years. Unlike the Employees Provident Fund (EPF), it does not allow withdrawal before superannuation (in case of government employees) or before the subscriber reaches 60 years (with private employees).

Now, the  Pension Fund Regulatory and Development Authority (PFRDA) is proposing to allow earlier withdrawal. In a circular issued on January 15, PFRDA has proposed withdrawals, not exceeding 25 per cent of the contribution made by the subscriber, be permitted from an individual pension account. This may be subject to conditions such as the purpose, frequency and limits. The regulator has invited suggestions till February 15, after which final guidelines will be announced.

The thinking is to provide an early exit, similar to EPF, said the head of a pension fund. “It is largely aimed at government employees, who have been subscribers since 2004 and must have built up a significant corpus,’’ he said.

The official added there was a lot of pressure to introduce flexibility in NPS and this will ensure subscribers will not withdraw the entire corpus.

Currently, a subscriber can exit only when he or she attains the age of superannuation (with government employees) or at 60 years (for other subscribers). Even then, 40 per cent of the accumulated corpus must be used for purchasing an annuity. If any subscriber wants to exit before this, at least 80 per cent of the accumulated corpus must be used for purchasing an annuity and the balance will be paid as a lump sum.

In addition, the circular proposes subscribers can withdraw up to 25 per cent of the subscription, not the corpus (returns earned on the subscription will not be touched) after completing 10 years in the scheme. This can be done for specific purposes such as purchase of a house, education or marriage of children, or medical treatment for specific illnesses for self, spouse or children. Such a withdrawal can be allowed three times during the tenure and there should be a gap of at least five years between each withdrawal, except when required for medical treatment, the circular said. The conditions for withdrawal are similar to those for EPF.

However, financial planner Paul D’Souza of Cuzinns Investment Services says allowing withdrawals from NPS will defeat the whole purpose, which is to give cash flow after retirement. “As it is, a withdrawal facility is available with EPF; for salaried employees, that is enough. ,’’ he says.