If you’re investing in the National Pension System (NPS) for your retirement planning, there’s excellent news for you. The Public Sector Undertaking (PFRDA) recently made historic changes to the NPS rules, which will provide tremendous flexibility, especially to private sector investors. The most significant change is that the five-year lock-in period mandated for non-government investors has been eliminated. This means you no longer have to wait years to withdraw a lump sum. This move brings significant relief to millions of people who wanted greater control over their investments.
NPS Exit Process Made Even Easier
Previously, exiting the NPS was considered a complicated process because investors were required to invest a significant portion of their retirement corpus in an annuity or pension plan. Under the old rules, you could only withdraw a lump sum of 60 percent of your total corpus at retirement, and the remaining 40 percent had to be used to purchase a pension plan. However, the PFRDA has now lifted these restrictions, significantly increasing investors’ cash availability at the time of retirement.
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Major relief for investors with funds exceeding ₹12 lakh
The biggest benefit under the new rules will be for those with NPS funds exceeding ₹12 lakh. Now, such non-governmental investors can withdraw 80 percent of their total deposits in a single lump sum. Only 20 percent will need to be invested in annuities. This change is a boon for those who need a large sum of money in old age for major expenses or children’s responsibilities.
There is also news of relief for small investors. If an investor’s total NPS funds are up to ₹8 lakh, they can now withdraw 100 percent of the entire amount at once without any conditions. Those with funds between ₹8 lakh and ₹12 lakh can withdraw up to ₹6 lakh at a time, and the remaining amount must be used to purchase a pension plan for at least 6 years.
Investment up to age 85 and lock-in eliminated
The PFRDA has now increased the maximum age limit for remaining in the NPS to 85 years. This is beneficial for those who want to enjoy the benefits of compounding on their funds over a long period. The biggest win for non-government investors is the elimination of the mandatory 5-year lock-in, allowing them to exit the scheme mid-term if needed. However, it is worth noting that the old rules will remain applicable for government employees, where the 40% annuity rule on funds above ₹5 lakh will remain in place.
Special circumstances and premature withdrawal rules
The government has also significantly relaxed the rules on humanitarian grounds. If an investor renounces Indian citizenship, they can withdraw their entire corpus in one lump sum. Similarly, upon the investor’s death, the entire accumulated corpus is transferred to the nominee. If an investor wishes to exit the scheme prematurely, i.e., before maturity, they must generally invest 80% of the corpus in the annuity, but if the total corpus is less than ₹5 lakh, the entire corpus can be withdrawn without hassle.
Special exemptions are also available in the event of a serious illness or disability, based on a medical certificate. Overall, these new amendments make NPS an investor-friendly scheme that addresses both present and future needs while ensuring future security.
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