The Pension Fund Regulatory and Development Authority (PFRDA) has announced the introduction of new rules for withdrawal from the National Pension System (NPS) with effect from April 1, 2023.
The NPS was introduced in 2004 to provide an affordable social security option to citizens of India. It has developed over time into one of the most popular pension schemes in India. Its low-cost structure, tax benefits, and simplified procedures have made it an attractive retirement planning option for both salaried individuals and self-employed people.
To further facilitate smooth transition of subscribers exiting the NPS, PFRDA has implemented new rules for withdrawals. With the new rules, PFRDA hopes to make annuity payments faster and simpler for subscribers exiting the NPS.
What are the major changes for NPS subscribers?
The PFRDA has made it mandatory for all NPS subscribers to upload certain documents to the Central Record-Keeping Agency (CRA) user interface before withdrawing the pension corpus. These documents include:
- NPS exit/withdrawal form
- Proof of identification and residence as stated in the withdrawal request
- Bank account proof
- Copy of the Permanent Retirement Account Number (PRAN) card
Subscribers and nodal officers/POPs/Corporate have been asked to ensure that these documents are uploaded to the CRA user interface before the withdrawal of the pension corpus.
The PFRDA has also requested the associated nodal officers/POPs/corporate to educate the subscribers about the importance of uploading the documents and checking their legibility
How does the exit rule change?
At the moment, when an NPS subscriber reaches maturity, they must invest 40% of their total accumulated corpus into an annuity plan. The remaining 60% can be taken out as a single lump sum payment.
For those who choose to exit the system before the age of 60, 80% of the total NPS corpus must be employed to purchase a pension plan from an insurance company.
The PFRDA has simplified the process of exiting by treating the form submitted by the subscriber as an annuity proposal form. This will expedite the processing of both the lump sum and annuity, resulting in improved servicing of subscribers and the timely delivery of annuities.
How to apply for an exit request?
- The subscriber can begin an online withdrawal request by logging into the Central Recordkeeping Agency (CRA) system.
- At the commencement of the request, the pertinent messages about e-Sign/OTP authentication, endorsement of the request by the nodal office/Point of Presence (PoP), etc. will be displayed to the subscriber.
- While initiating the request, particulars like address, banking details, nominee information, etc. will be automatically populated from the NPS account.
- The contributor will select the allotment percentage for the lump sum/annuity, annuity information, etc.
- The subscriber's bank account (registered in CRA) will be validated through the online bank account confirmation.
- The subscriber is obliged to upload the KYC documents (identity and address evidence), a copy of the Permanent Retirement Account Number (PRAN) card/ePRAN, and bank Proof when submitting the withdrawal application.
- The scanned documents should be valid i.e. the scanned images should be legible.
The new rules introduced by PFRDA will enable NPS subscribers to receive their annuity payments faster and more conveniently. This will help them enjoy their retirement years with greater financial security.