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Govt's grip on your NPS money loosens as exit rules are relaxed

Among the Nine serious limitations in NPS discussed earlier, one critical drawback was the extremely restrictive withdrawal / exit rules... both on maturity and in the interim.

Now, you can expect some relief from the Govt.'s vice-like grip, on your money in the National Pension System (NPS) account.

Certain changes, in this connection, were announced recently by PFRDA as per its notification "Pension Fund Regulatory and Development Authority (Exits and Withdrawals Under the National Pension System) Regulations 2015".

NPS has three types of subscribers
- Government Employees
- All citizens including the corporate sector
- NPS-Lite and Swavalamban

The following discussion pertains to 'all citizens including the corporate sector' subscribers only.

Exit from NPS on maturity
Earlier provision
When you attained the age of 60
- 40% of the accumulated amount was compulsorily utilized to buy an Annuity Plan
- Balance 60% was returned to you as lump sum amount (this condition was later relaxed and you could defer the withdrawal up to the age of 70)

New announcements
Henceforth, when you attain the age of 60, or retire as per your service rules, you can
- Continue to subscribe to the NPS beyond the retirement age, going up to max 70 years
- Defer withdrawing the lump sum amount until the age of 70 (as in the past)
- Defer the purchase of the mandatory Annuity Plan for a maximum period of 3 years
Withdraw 100% amount, without buying an Annuity, if the balance is less than Rs.2 lakhs

Of course, you would have to continue paying all the applicable charges such as to the central record-keeping agency for maintenance of your Permanent Retirement Number, to the Pension Fund, to the Trustee bank etc.

This flexibility is REALLY good. 

For example, if you continue working even after 60, you may like your NPS account too to continue. And, you may also want that your pension should start after a few years, rather than immediately. Or, if the equity markets are in a bearish phase when you retire, you would prefer holding the money till the markets recover. It would be bad if the rules forced you to exit on a fixed date at a loss.
Some relief from the Govt.'s vice-like grip, on your NPS money.
Early Exit from the NPS 
Earlier provision
If you wished to exit from the NPS, prior to its maturity
- 80% of the accumulated amount was compulsorily utilized to buy an Annuity Plan
- Balance ONLY 20% was returned to you as lump sum amount

New restrictions
- Now, you can prematurely exit from the NPS, as above, only if you have subscribed to it for at least 10 years
If the total accumulated amount is more than Rs.1 lakh and you still haven't achieved the minimum age to be eligible for an Annuity Plan, you will have to continue your subscription with NPS, till such minimum eligible age
- However, if the total accumulated amount is less than Rs.1 lakh, you can withdraw the entire amount without buying any Annuity Plan

Thus, early exit from NPS has been made more restrictive.

Interim withdrawals from the NPS Account
Earlier provision
There was NO provision to withdraw "any" amount from your NPS Account, while still continuing with the subscription.

New relaxation
- After being a subscriber for 10 years, you are allowed interim withdrawals from your NPS account
- Upto max 25% of the own contribution only (i.e. excluding employer's contribution) is allowed to be withdrawn
- Purposes for which you can withdraw include (a) children's higher education and marriage, (b) construction of a house if you don't own one and (c) treatment of specified illnesses of self, spouse, children or dependent parents
- You are allowed to make max three such interim withdrawals during the entire tenure of NPS subscription
- At least 5 years of gap must be maintained between two withdrawals, except when the amount is required for treatment of illnesses.

Well, some flexibility is better than nothing.

However, NPS continues to suffer from highly adverse taxation as compared to other options such as EPF, PPF, Mutual Funds, etc. Don't be conned by the tax benefits available at the time of investment. The Govt. will recover all this, and much more, in the future. The matter, in fact, is so critical that it requires a separate discussion.

Therefore, at present, it still makes ample sense to keep away from the National Pension System.

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