At the time of exit from National Pension System i.e. NPS, subscribers can now buy more than one annuity / pension scheme from Annuity Service Provider (ASP) i.e. Life Insurance Company.
According to the Pension Fund Regulatory and Development Authority’s (PFRDA) circular dated May 10, 2023, at the time of exit from NPS, those subscribers who have Annuity corpus will be more than Rs 10 lakh. But each annuity scheme will have a minimum of Rs 5 lakh.
Earlier, at the time of exit from NPS, subscribers were allowed to buy only one annuity scheme from any one ASP.
Now let us know other rules regarding exit from NPS –
How much to invest in annuity
After maturity…
According to the rules, after the age of 60 years (retirement), only 60% of the total maturity amount from NPS is allowed to be withdrawn as lump sum (lump sum), which is tax-free. The remaining 40% of the maturity amount has to be invested in an annuity plan, which gives pension. The investment amount in annuity is tax-free, but there is no tax exemption on the amount of pension received as return under annuity. Means the pension received as a return is added to the annual income of the investor and the taxpayer has to pay tax according to the tax slab. On the other hand, if the total corpus after retirement is equal to or less than Rs 5 lakh, then NPS subscribers can withdraw the entire amount.
Before maturity….
Before 60 years i.e. in case of premature exit, the NPS subscriber has to invest 80% of the corpus in the purchase of an annuity ie pension plan from a life insurance company. While only 20 percent of the corpus can be withdrawn as lump sum. Whereas, if the corpus/fund is equal to or less than Rs.2.5 lakh at the time of premature withdrawal, then there is no compulsion for the subscriber to buy an annuity plan. Means they can withdraw the entire amount in lump sum. You cannot exit NPS before five years.
Option after retirement or 60 years of age
After retirement or 60 years of age, NPS subscribers have the option to continue the contribution till the age of 75 years. During this period also, the subscribers will continue to get tax exemption as before. Subscribers can exit from NPS anytime during the continuation period.
The second option is for the subscribers to retain their investments without contribution till the age of 75 years i.e. defer the withdrawal. Subscribers can either defer lump sum withdrawal only or only annuity or both. Such subscribers can exit from NPS anytime during the deferment period.
If you start investing in NPS after 60 years or later…
Subscribers who have started investing in NPS after 60 years or later can exit from NPS after investing for 3 years. In the event of exit, such subscribers will be allowed to withdraw only 60% of the total maturity amount from NPS in lump sum. The remaining 40% of the maturity amount will have to be invested in an annuity plan. On the other hand, if the total corpus is equal to or less than Rs 5 lakh, then NPS subscribers can withdraw the entire maturity amount.
But if you exit without investing for 3 years, then it will be considered as premature exit. In this situation, the NPS subscriber will have to invest 80% of the corpus in the purchase of an annuity ie pension plan from a life insurance company. While only 20 percent of the corpus they can withdraw lump sum. And if the corpus is less than or equal to Rs 2.5 lakh, then there is no compulsion for the subscriber to buy an annuity plan. Means they can withdraw the entire amount in lump sum.
Annuity/Pension Plan
Under pension/annuity plan, life insurance companies give pension to the customers on their lump sum investment regularly i.e. on monthly, quarterly, half yearly or yearly basis. The rate of interest is fixed which is decided at the time of investment/subscription.
At present, NPS subscribers can buy annuity plans only from 15 Annuity Service Providers (ASPs) empaneled with PFRDA i.e. Life Insurance Companies. These insurance companies are –
Life Insurance Corporation of India
HDFC Standard Life Insurance
ICICI Prudential Life Insurance
SBI Life Insurance
Star Union Dai-ichi Life Insurance
Bajaj Allianz Life Insurance
Edelweiss Tokio Life Insurance
IndiaFirst Life Insurance
Canara HSBC Oriental Bank of Commerce Life Insurance
Kotak Mahindra Life Insurance
Max Life Insurance
Tata AIA Life Insurance
PNB MetLife India Insurance
Aditya Birla SunLife Insurance
Shriram Life Insurance
