PFRDA Revises Lumpsum Withdrawal Limit On Exit From NPS

The Pension Fund Regulatory and Development Authority (PFRDA) has amended the National Pension System's premature exit regulations, mandating that a surplus of 20% be provided as a lump sum to the subscriber and the remaining balance be used to purchase an annuity from the Annuity Service Providers (ASP) empaneled by PFRDA. This premature exit will extend to the subscribers of both Government Sector and Non - Government Sector. Under NPS subscribers who are continuously invested for a period of 10 years are categorized as Non - Government Sector.

According to PFRDA, if the corpus is equal to or below 2.5 lakh, lump sum is payable and if the corpus is higher than 2.5 lakh, at least 80% of the accumulated pension wealth has to be utilized for the purchase of an Annuity providing for monthly pension to the subscriber. The balance of 20% is payable as a lump sum to the subscriber of the government sector on premature exit before 60 years/Superannuation. Whereas subscribers under the Non - Government Sector lump sum payable if the corpus is equal to or less than 2.5 lakh and if the corpus is more than 2.5 lakh, at least 80% of the accumulated pension wealth of the Subscriber has to be utilized for purchase of an Annuity. The balance of 20% is payable as a lump sum.

Under normal exit (60 years or beyond) & Superannuation), lump-sum withdrawal is allowed if the corpus is equal to or below 5 lakhs and if the corpus is more than 5 lakhs, at least 40% of the accumulated pension wealth of the subscriber has to be utilized for purchase of an Annuity providing for monthly pension to the subscriber. The balance of 60% is paid as a lump sum to the subscribers of government sector, Whereas subscribers under the Non - Government Sector lump sum withdrawal is allowed if the corpus is less than or equal to 5 lakhs and if the corpus is more than 5 lakhs, at least 40% of the accumulated pension wealth of the Subscriber has to be utilized for purchase of an Annuity. The balance of 60% is paid as a lump sum.

In case of unfortunate death of a subscriber of government sector lump sum is payable to nominees/legal heirs if the corpus is less than or equal to 5 lakhs. If the corpus is higher than 5 lakhs, at least 80% of the accumulated pension wealth of the Subscriber has to be utilized for the purchase of Default Annuity by dependents and the balance 20% is paid as a lump sum to the nominee/legal heir and if none of the dependent family members (spouse, mother & father) are alive unfortunately, 20% is to be paid as a lump sum to the nominee/legal heir. The balance corpus i.e. 80 % is payable to the surviving children of the Subscriber or to the legal heirs. Whereas subscribers under the Non - Government Sector the entire accumulated pension wealth of the Subscriber is payable to the nominee or legal heirs.

For subscribers who are on-boarded NPS between 18-60 years, PFRDA has clarified in its circular dated 21st September 2021 that "Default Annuity Scheme provides for Annuity for life of the subscriber and the spouse with provision for return of purchase price of the Annuity. Upon the demise of such annuitants, the Annuity will be re-issued to the family members. After the coverage of the family members, the purchase price shall be returned to the surviving children of the Subscriber and in the absence of children, the legal heirs of the Subscriber, as may be applicable."

Subscribers who join NPS beyond 60 years:

The exit before 3 years shall be treated as 'premature exit' and those withdrawals beyond 3 years is the 'normal exit'. For premature exit, the permissible limit for a lump sum is 2.5 lacs and 5 lacs under normal exit without the need for annuitization. In case of the unfortunate death of those subscribers, the entire corpus shall be paid to the nominee/legal heirs, said PFRDA.

According to PFRDA, if the corpus is equal to or below 2.5 lakhs, lump sum is payable, and if the corpus is higher than 2.5 lakhs, at least 80% of the accumulated pension wealth has to be utilized for the purchase of an Annuity providing for monthly pension to the Subscriber. The balance of 20% is payable as a lump sum, to the subscriber of non-government sector on-boarded NPS between 60-70 years of age but made a premature exit before completion of 3 years.

In case of a normal exit made after completion of 3 years, lump-sum withdrawal is allowed if the corpus is equal to or below 5 lakhs and if the corpus is more than 5 lakhs, at least 40% of the accumulated pension wealth of the Subscriber has to be utilized for purchase of an Annuity providing for monthly pension to the Subscriber. The balance of 60% is payable as a lump sum to the subscriber.

In case of unfortunate death of a subscriber of non-government sector, the entire accumulated pension wealth of the Subscriber is payable to the nominee or legal heirs, according to the new premature exit rules made by PRRDA on dated 21st September 2021.

Source: PFRDA