For people who want to produce a sizable income after reaching the age of 60, the National Pension System (NPS), which is supervised by the Pension Fund Regulatory & Development Authority (PFRDA), is a voluntary retirement program. The NPS offers three different types of exit options: exit upon unexpected death, which allows subscribers to exit before normal exit/60 years of age/superannuation. The other two options are premature exit/voluntary retirement, which allows subscribers to exit before age 60/superannuation, and normal exit, which allows subscribers to exit at age 60 or beyond/superannuation.
Amit Sinha, Group Head, Social Security and Welfare, Protean eGov Technologies Limited (previously NSDL eGovernance Infrastructure Limited), gave brief information about leaving the NPS in an interview with Mint’s Vipul Das. He has addressed some commonly asked questions (FAQs) regarding leaving the NPS, which might make it simpler for both new and existing subscribers to understand the differences between exit rules for the public and private sectors.
What documentation and forms are available for the National pension System (NPS) exit process beyond the age of 60? What are the submission guidelines and requirements for Tier 1 and Tier 2 accounts?
Subscribers won’t have to wait until they are 60 years old to begin the leaving procedure. Six months before the subscriber becomes 60 years old, the process begins. By providing alerts alerting the subscriber about the many alternatives available at 60 years old, what needs to be done if the subscriber decides to depart from NPS and start pension, etc., Protean CRA notifies the subscriber about his or her impending superannuation. This allows the Subscriber enough time to be ready for retirement.
NPS Subscriber can choose from the following options:
1. The Subscriber has the option of withdrawing a lump payment and annuitizing the balance. A minimum of 40% of the accumulated corpus must be annuitized by the Subscriber, and a lump sum withdrawal of up to 60% of the corpus is permitted. The process of transforming an investment in an annuity (i.e., a pension) into a series of recurring income payments under the National Pension System (NPS) is known as annuitization.
2. The Subscriber has the option to postpone (or delay) taking a lump sum payment, an annuity, or both until they are 75 years old.
3. Lastly, the Subscriber has the option to keep paying up until age 75.
A NPS Subscriber has the option to annuitize up to 100% of the accumulated amount, which would result in a higher pension for the Subscriber, even though the default option is annuitization of a minimum of 40% of the accumulated corpus and lump sum withdrawal of the remaining 60% of the accumulated corpus.
An individual (together with their spouse) is likely to have over three decades of retirement life given the rising mortality age in today’s society. A greater, consistent pension income is crucial for this reason, especially in light of inflation rates. In light of this, I’d like to restate that the Subscriber who chooses to annuitize 100% of the accumulated corpus will be eligible for a greater pension amount.
Another intriguing feature we’d like to draw attention to is the fact that, in NPS, while the Subscriber can select his or her Pension Fund Manager (PFM) for the accumulation phase, flexibility is also available for selecting the Annuity Service Provider (ASP) who will be providing the Subscriber with Annuity during the de-accumulation phase.
The de-accumulation phase (also known as exit from NPS) is completed in a fluid, paperless manner, entirely online. The subscriber only needs to start an online exit request in the system, upload scanned copies of their KYC documents, and digitally sign it. No physical documentation must be sent. As a result, the Subscriber saves a significant amount of time and work and is significantly less dependent on any intermediary.
The Tier 2 account closes instantly along with the Tier 1 account if the user has an active Tier 2 account. Closing a Tier 2 account does not require a separate request.
What advantages do you get when you exit?
Upon leaving the NPS, subscribers might profit from tax advantages. Tax exemption applies to lump sum withdrawals up to 60% of the total accrued pension asset. Additionally, the money used to buy an annuity (for getting pension) is tax free. However, the money from the annuity that is periodically withdrawn as pension is taxed according to the tax bracket of the recipient.
In this case, we’d like to bring out an intriguing aspect regarding the tax on NPS leave. Typically, when a person retires, they receive income from a variety of sources, including gratuities and other benefits. The unexpected influx of excessive liquidity can frequently lead to uncertainty regarding “where to invest?” A person can park extra assets earned from various sources in NPS and receive the tax benefit according to the tax rate they fall under because the age for investing in NPS has been extended beyond 60 years, up to the age of 75. Tier 2 withdrawal has no tax advantages.
Is it possible for me to fully withdraw my accumulated pension wealth without annuitization?
In the NPS pension plan, after reaching the age of 60, you receive a pension from the funds you have collected over your working years. One must withdraw the full pension fortune without annuitizing it in order to guarantee that the Subscriber receives an adequate pension. As previously stated, an annuity must be used for at least 40% of the corpus. However, if total pension value at the time of exit is up to Rs. 5 lakhs, the subscriber may withdraw the entire corpus.
What would happen if someone didn’t retire at age 60 or superannuation? When will the money that was held back be paid?
Until the exit request to withdraw the NPS corpus is processed, the NPS account will remain open.