PFRDA Revises Entry Age of NPS

Are you looking at an investment for retirement planning? Do you want the twin benefits of tax saving and inflation-beating returns? You can invest in the National Pension System or NPS. It is a government-sponsored pension scheme that helps you build a retirement corpus. You have the Pension Fund Regulatory and Development Authority or PFRDA revising the rules for people joining NPS after 65 years. Let’s look at some of the new regulations for NPS.

PFRDA revises entry age for NPS

You have the PFRDA increasing the maximum age for entering the National Pension System from 65 years to 70 years. Earlier, you could join the NPS if you were between 18-65 years. However, you can now enter the NPS even if you are 65 years old.

You can join the NPS if you are an Indian citizen or an Overseas Citizen of India (OCI) between 65-70 years. Moreover, you can continue with the NPS account until you are 75 years old. 

You will find the PFRDA allowing subscribers who have already closed their NPS accounts to open new accounts as per the increased age eligibility norms. 

NPS subscribers above 65 years can take up to 50% equity exposure

You have the PFRDA allowing NPS subscribers who join after 65 years of age to take up to a maximum of 50% exposure towards equities. However, you can take a maximum exposure of only 15% towards equities if you join the NPS after 65 years and opt for the default ‘Auto Choice’ option. 

You will find the NPS offering subscribers two investment options called the active choice and the auto choice. You can decide the asset allocation towards the asset classes of Equities (E), Government Securities (G), Corporate Debt (C) and Alternate Investment Funds (A) under the active choice. However, you can take a maximum allocation of only 75% towards equities. 

You also have the auto choice, which is a default option under the NPS. It is a lifestyle based approach where asset allocation depends on the age of the subscriber. However, you can invest up to 50% in equities even if you join the NPS beyond 65 years, provided you select the active choice option. 

If you join the NPS after 65 years of age, you can allocate only 5% of the funds towards alternate investment funds under the active choice. Moreover, you do not have the option of investing in alternate assets under the auto choice. 

Exit and withdrawal rules for NPS subscribers above 65 years

NPS subscribers who join the scheme after 65 years have a normal exit after three years. However, you can withdraw only 60% of the accumulated corpus as a lump sum amount. You must utilise a minimum of 40% of the accumulated corpus to purchase an annuity plan. If the accumulated corpus is equal to or below Rs 5 lakh, you can opt to withdraw the accumulated pension wealth as a lump sum. 

If you join the NPS after 65 and exit before three years, it is treated as a premature exit. You would have to utilise a minimum of 80% of the corpus to buy an annuity plan. However, you can withdraw the remaining amount as a lump sum amount. If the accumulated corpus is equal to or below Rs 2.5 lakh, you can opt to withdraw the accumulated pension wealth as a lump sum. 

You can invest in the NPS to accumulate the corpus for your retirement. Moreover, NPS has allocation towards equity, which can generate inflation-beating returns as you must stay invested across your working life. In a nutshell, you could invest in the NPS if you have a longer investment horizon. 

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in