Did you know: You can now join NPS up to 65 years

Entry age limit for the National Pension System is now 65 years, from the earlier age limit of 60 years

SHAIKH ZOAIB SALEEM

The Pension Fund Regulatory and Development Authority (PFRDA) recently increased the entry age limit for the National Pension System (NPS) to 65 years, from the existing limit of 60 years. This is applicable to the NPS for private sector, which is the All Citizen Model and Corporate Model of NPS.

A person joining the NPS after 60 years of age will be allowed to contribute to her NPS account till the age of 70 years. The PFRDA circular stated: “…due to better healthcare facilities and increased fitness, along with the opportunities and avenues available in the private sector as well as in the capacity of self-employment, more and more people in their late 50s or 60s are now living an active life allowing them to be employed productively.” You can read the circular here.  

Being a pension product, age plays an important role in the NPS. It is a defined contribution pension plan that needs you to keep contributing till the age of retirement. The minimum annual contribution to the pension account (or Tier I account) is Rs1,000. Investments are market linked and you can choose any of the three funds: government securities fund, fixed-income instruments other than government securities fund, and equity fund. But you can’t put more than 50% of your money in the equity fund.

At 60 years of age, you can take up to 60% of this money in lump sum, and buy an annuity product with the rest. It is mandatory to annuitize at least 40% of your corpus on retirement. Also, at withdrawal, only 40% of your corpus is exempt from income tax. 

Early exits are discouraged by mandating 80% of the accumulated corpus to buy an annuity. But the rules now allow for partial withdrawals up to 25% of the contributions for specific purposes. 

Tier-1 accounts in NPS are pension accounts, while tier-2 accounts are for voluntary savings and investments. Tier-2 contributions can be moved to tier-1, but the reverse is not allowed. 

If you join after 60 

While joining NPS early gives you an option to get higher exposure to equity, those joining after 60 and choosing the auto-choice mode of investment will have a limit of 15% for equity allocation for their contributions, if they choose the aggressive life cycle fund. In this case, 75% of the contributions are invested in government securities and 10% in corporate bonds.

If the choice is conservative life cycle fund, then 90% is invested in government securities and only 5% goes to equity. The remaining 5% goes to corporate bonds. 

For the subscribers who are joining after age 60, normal exit has been allowed after they complete 3 years in NPS. In this exit too, the subscriber will have to annuitize 40% of the corpus. If the accumulated corpus is less than Rs2 lakh, the subscriber will have an option to withdraw the entire corpus as lump sum. 

Exiting before completing 3 years will be considered pre-mature exit and 80% of the corpus will have to be annuitized. But if the total corpus at the time of exit is less than Rs1 lakh, the entire corpus can be withdrawn as lump sum.

The taxation aspect remains the same for all NPS subscribers, which is EET or exempt, exempt, taxed. This means that while contributions and returns are tax exempt, withdrawals are taxable.

First Published: Tue, Nov 21 2017. 05 04 PM IST livemint