NPS recent updates - are you aware?

National Pension System (NPS) is widely known as a tool to accumulate fund for retirement or to save some tax. What should be the right approach or right tools for this goal, can be a topic for some other day. This post is not intended to be a recommendation of NPS or otherwise. We aim here to take a quick retour of NPS recent updates which you might have missed. Let's start.

(A) Lump sum payment of corpus on exit

For subscribers who are on-boarded within 18 - 60 years of age -

Premature exit (i.e., voluntary exit before 60 years of age): For govt. employees, if the corpus is <=2.50 lacs then entire amount can be withdrawn. For non-govt. employees the same rule is applicable provided he/she has completed 10 years as subscriber. If the corpus is >2.50 lacs, then at least 80% of the corpus must be utilized to purchase annuity and rest 20% can be withdrawn as lump sum.   Normal exit (i.e., at or beyond 60 years of age): If the corpus is <=5 lacs then entire amount can be withdrawn for both govt. employees as well as for others. If the corpus is >5 lacs, then at least 40% of the corpus must be utilized to purchase annuity and rest 60% can be withdrawn as lump sum. For subscribers who are on-boarded within 60 - 70 years of age -

The exit before 3 years is treated as 'premature exit' and exit after 3 years as 'normal exit'. For ‘premature exit’ and ‘normal exit’ the entire amount can be withdrawn as lump sum if corpus value is <=2.50 lacs and <=5 lacs respectively. If the corpus value is above these limits, then at least 80% and 40% of corpus must be annuitized for ‘premature exit’ and ‘normal exit’ respectively. (B) Increase of entry age

The earlier entry age limit of 18-65 years has now revised up to 18-70 years. Any Indian citizen (resident or non-resident) and Overseas Citizen of India (OCI) between the age of 65-70 years can now join NPS and continue or defer their NPS account up to the age of 75 years.

The subscribers who are joining NPS beyond the age of 65 years, can opt for maximum equity exposure of 50% and 15% under Active and Auto choice respectively. They can opt to change Pension Fund once per year whereas asset allocation can be changed twice per year.

(C) Purchase of multiple annuities

Earlier, the subscribers were allowed to buy only one annuity scheme from the Annuity Service Provider (ASP) at the time of exit. Now, one can purchase multiple annuity schemes from the same ASP. The option of multiple annuities shall be provided to those subscribers who earmark more than Rs. 10 lacs as annuity corpus wherein Rs. 5 lacs can be utilized to buy each annuity scheme.  

(D) Allowing equity exposure of up to 75% throughout

Earlier, NPS subscribers who opted for ‘Active choice’ mode of asset allocation, had the option to allocate their contributions to different asset classes with two restrictions – maximum 5% can be allocated to alternate assets and maximum 75% can be allocated to equity asset class. They could allocate maximum 100% to other two asset classes – corporate bonds and govt. securities.

However, the limit of 75% on equity asset class used to get reduced by 2.5% every year and the same is re-allocated to govt. securities, between the subscriber’s age of 51 to 60. Now this has been modified. The subscriber now can allocate up to 75% of his/her contribution to equity asset class (under Active Choice of Tier-1 plan) without any condition of reduction thereafter.