NPS Rules: Many NPS subscribers believe that their entire National Pension System corpus has to be withdrawn or the account closed once they reach 60. However, under the options provided by the Pension Fund Regulatory and Development Authority (PFRDA), subscribers can choose to keep their NPS savings invested even after retirement.
By opting for alternatives such as Deferment and Systematic Lump Sum Withdrawal, retirees can continue to keep their money invested and potentially benefit from market-linked growth until the age of 75.
How Can NPS Savings Grow After 60?
At retirement, NPS subscribers have options that allow their accumulated savings to remain invested rather than being withdrawn immediately.
Under Deferment, a subscriber can postpone the withdrawal of the lump sum or the purchase of an annuity until the age of 75. During this period, the money can remain invested across equity (E) and bonds (C & G), with potential market-linked returns estimated at around 8% to 12% annually.
Another option is Systematic Lump Sum Withdrawal. Under this facility, up to 60% of the lump sum can be withdrawn through regular installments, while the remaining amount continues to stay invested and grow.
Why Avoid Withdrawing the Entire Amount Immediately?
Keeping the NPS corpus invested may provide greater growth potential compared with moving the entire amount into conventional savings options immediately.
The article’s comparison notes that savings accounts and fixed deposits may offer returns of around 6.5% to 7.5%, compared with potential NPS returns of approximately 9% to 11%. However, NPS returns are market-linked and are not guaranteed.
Tax treatment is another consideration. Interest earned from fixed deposits is taxable according to the individual’s applicable tax bracket.
For example, a subscriber with an NPS corpus of Rs 1 crore at the age of 60 may consider the available options instead of withdrawing the entire amount at once, allowing a portion of the corpus to remain invested.
Key Things NPS Subscribers Should Remember
At retirement, subscribers need to allocate at least 40% of the NPS corpus towards purchasing an annuity, which provides a pension for life.
Subscribers can also retain flexibility over their retirement savings until the age of 75 by choosing lump sum withdrawals or starting their pension at an appropriate time.
Keeping nomination details updated is also important. Correct nominee information can help avoid interruptions or difficulties related to pension and installment payments.
Disclaimer
This article is intended for general informational purposes only. NPS rules, withdrawal options, taxation and applicable conditions may vary according to prevailing regulations. Readers should verify the latest provisions and seek appropriate financial advice before making decisions regarding their retirement savings.