New NPS Partial Withdrawal Rules Coming into Effect on February 1: Key Conditions and Process

As of February 1, the National Pension System (NPS) is set to implement new rules for partial withdrawals, as outlined in a circular issued by the Pension Fund Regulatory and Development Authority (PFRDA) on January 12, 2024.

This contributory pension scheme, managed by the Central Government, serves as a long-term retirement plan, offering both lump sum and pension benefits.

Key Changes in Partial Withdrawal Rules:

The circular specifies that NPS account holders can now withdraw up to 25% of the amount, excluding employer contributions, from their individual pension accounts.

This new facility is scheduled to be available to account holders starting February 1.

Under What Conditions Can You Make Partial Withdrawals?

1. Higher Education Expenses: Partial withdrawals are permitted for funding children’s higher education.
2. Marriage Expenses: Account holders can withdraw up to 25% for their children’s marriage.
3. Home Purchase or Loan Repayment: Withdrawals can be made for buying a house or repaying a home loan, with the condition that the account holder does not already own a house.
4. Medical Expenses: Money can be withdrawn for hospital stay, treatment expenses, or in cases of serious illnesses.
5. Disability or Medically Incapacitated: In situations of disability due to accidents or serious illnesses, partial withdrawals are allowed.
6. Business Ventures: Withdrawals can be made for starting a business, initiating a startup, skill development, or pursuing a course.

Requirements for Partial Withdrawal:

1. Minimum Membership Duration: NPS subscribers must be members for at least three years from the joining date.
2. Limit on Withdrawals: More than one-fourth of the subscriber’s contribution cannot be withdrawn, and withdrawals are capped at a maximum of three times during the entire subscription tenure.
3. Time Gaps between Withdrawals: There must be a gap of 5 years between each of the three partial withdrawals.

Withdrawal Process:

1. Application Submission: To withdraw 25% or less under NPS, applicants need to submit an application to any government nodal agency of NPS.
2. Self-Declaration: Along with the application, a self-declaration stating the purpose of withdrawal must be provided.
3. Submission to CRA: The application then needs to be submitted to the Central Recordkeeping Agency (CRA).
4. Verification and Processing: After verification, the CRA will process the application. In case of illness, a family member or nominee can make the request on behalf of the subscriber.

The NPS, initially launched in 2004 for government employees, was extended to private sector employees in 2009.

After reaching the age of 60 (retirement), account holders can withdraw 60% of the total maturity amount in a lump sum, with the remaining 40% invested in an annuity plan, providing a pension stream.