NPS Withdrawal Rules: Most people believe that upon reaching the age of 60, one should withdraw the entire NPS (National Pension System) corpus and close the account. However, the Pension Fund Regulatory and Development Authority (PFRDA) offers different provisions.
If you do not withdraw the entire amount after retirement, your fund remains invested in the market beyond the age of 60, potentially yielding substantial returns. By utilising options such as deferment and systematic lump-sum withdrawal, subscribers can earn impressive compound interest on their NPS funds until the age of 75.
How does the NPS corpus continue to grow?
At the time of retirement, subscribers have two options for managing their total corpus, which allow their money to keep growing. One such feature is the facility to defer withdrawals; you can postpone withdrawing funds or purchasing an annuity from your NPS account until the age of 75.
As long as your money remains in the NPS account, it stays invested in equity (Asset Class E) and corporate or government bonds, continuing to earn market-linked returns ranging from 8% to 12% annually. PFRDA rules also allow you to withdraw the 60% lump-sum portion in instalments—monthly, quarterly, half-yearly, or annually—rather than all at once. The remaining balance in your account continues to generate interest and grow.
Disadvantages of immediate withdrawal
If a subscriber hastily withdraws the 60% lump-sum corpus at age 60 and moves it into a bank savings account or a standard fixed deposit (FD), they face two major disadvantages. In comparison, bank FDs typically offer interest rates between 6.5% and 7.5%. Meanwhile, the NPS long-term portfolio offers the potential for growth ranging from 9% to 11%.
While the 60% lump-sum amount withdrawn from the NPS is entirely tax-free, any interest earned by depositing that money into a Fixed Deposit (FD) is fully taxable according to your tax slab.
How much will the fund grow under PFRDA rules?
It is mandatory to utilise at least 40% of the corpus to purchase an annuity. According to the regulations, a minimum of 40% of the total corpus is allocated to buying an annuity, ensuring a lifelong pension. You can withdraw your lump sum or start your pension at any time up to age 75. Additionally, it is important to keep your nominee details and bank account information updated in your account at the time of retirement to ensure that SLW (Systematic Lump-sum Withdrawal) or pension installments are credited directly to your account without interruption.