NPS becomes more attractive

In the 2015-16 Budget, the Centre granted additional tax deduction of ₹50,000 to contributions made to the National Pension System (NPS). Now, it has made this pension scheme more attractive.

For an investor, the one glitch with NPS all along was that it didn’t offer liquidity. Unlike the Employee Provident Fund (EPF) which allows withdrawal of money when a person moves from one job to another or for reasons such as illness or child’s education, NPS allowed withdrawal only at the age of 60 years. If one chose to withdraw before the age of 60, 80 per cent of the amount needed to be converted into an annuity.

But, now, thanks to a few tweaks, withdrawals from NPS will be allowed. The Pension Fund Regulatory and Development Authority (PFRDA) has put out a new set of regulations for NPS.

Partial withdrawals All individuals who have been making contributions to NPS for 10 years or more will be now given the option to withdraw up to 25 per cent of the corpus. To check needless drawing of money from the corpus, withdrawals will be allowed only on four grounds.

These are: child’s education, marriage, purchase (or construction) of a residential house, or treatment of any illness (either of the individual himself, his spouse or children). There are 13 critical illnesses, including cancer, kidney failure, paralysis and heart surgery, for which withdrawal claims will be accepted. However, it has been stipulated that only a maximum of three withdrawals will be allowed and that too at an interval of five years.

When making withdrawals citing illness, the condition that five years should have elapsed from the previous withdrawal will not apply.

The new regulations say that corporate subscribers (who contribute through their employer) and normal citizens (other than those subscribed for NPS Lite and Swavalamban), if they so desire, can continue to contribute and keep money invested in the NPS account and not withdraw it till the age of 70.

However, to do this one should inform the authorities concerned at least 15 days prior to the attainment of superannuation (the time you exit) and agree to bear the fund management and other administrative expenses.

There is also a leeway now to defer the purchase of annuity by three years from the date of exit. Earlier, 40 per cent of the amount was to be converted into annuity at maturity.

Also, if the corpus is less than ₹1 lakh at maturity (in the case of corporate subscribers and normal citizens) one can withdraw it completely and not necessarily buy an annuity at the time of exit.

According to the new rules, the subscriber’s money in the NPS account is not liable to seizure or attachment by a court on application of a creditor.

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