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Moneylife » Personal Finance » Retirement » New Pension System: Will withdrawal issues be addressed?

New Pension System: Will withdrawal issues be addressed?

Moneylife Digital Team | 08/09/2011 06:20 PM | 

pensioners

Money invested under NPS is locked in till the age of 60 under the NPS Tier-I account. Will this change now? The Standing Committee suggests some flexibility, but there is a positive and a negative side to it


The New Pension System (NPS) has not worked very well. While for central government employees, contribution to the scheme is mandatory, the voluntary part of the NPS has not taken off at all. One of the main deterrents is that Tier-I of the NPS does not offer a facility to subscribers to withdraw their funds till they reach 60. Also, the NPS does offer a voluntary Tier-II account where withdrawals can be made.

The Tier-I account is compulsory for government employees and the bulk of the money is kept here, but it is almost impossible for them to withdraw the money in case of emergency expenses for an unforeseen event. This is what deters non-government subscribers from investing in the NPS Tier-I account, where savings would be locked up for about 25-40 years, till retirement.

This issue was taken up by the Parliamentary Standing Committee on Finance which reviewed the Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011. In its report presented to the Lok Sabha last week, it mentioned that NPS is aimed at providing income security in old age and not to meet periodic or occasional fund requirements during the working life of a person. However, such emergencies cannot be ignored either.

Therefore, the Committee has suggested that in the case of Tier I account, an element of flexibility should be provided to enable subscribers to withdraw money to meet unforeseen, urgent expenses, like a critical illness. For instance, a subscriber can be allowed to take one repayable advance from the accounts after completion of 15 years of service, and permanently withdraw up to 50% of the contribution after completion of a minimum 25 years of service to meet exigencies that should be appropriately listed in the regulations.

This will have two implications. A withdrawal clause would immediately make NPS more attractive for non-government employees. But would it also introduce an element of arbitrariness? India is known for red-tape and corruption. And this could lead to subscribers being forced to run around to secure permission to withdraw from the fund, causing frustration that may compel them to resort to other means to get their claims passed.

The Committee should have suggested a minimum percentage of withdrawal from the fund after a particular period, as is the case for ULIPs, which allow partial withdrawals after 3-5 years. This would have been easier to understand and non-discretionary.

Currently, one can invest through a Tier-II account, from which withdrawals are permitted. But the procedure for this is cumbersome.(Read: The New Pension System needs a comprehensive online facility) The network of Points of Presence (POP) agencies, where a subscriber can make a request for withdrawal, is not very widespread. There is no online facility and the subscriber would have to travel long distances to visit a POP, causing a lot of inconvenience.

The Employees Provident Fund (EPF) unlike the NPS, allows withdrawals in case a member requires to buy a house, repay a loan, fund children's marriage, or pay for medical expenses.


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Comment

15 Comments
manish

manish 1 month ago

sir i need loan from ndcps for purchase home please guide me

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KARADE KHANDOJIRAO

KARADE KHANDOJIRAO 3 months ago

Sir, I am Central Govt.. employee of appt.2006 and comes in NPS. I need the some portion of my subscription amount. what is the procedure for drawing of amount from my NPS account. please.
Thanking you Sir,

K.KHANDOJI RAO
CENTRAL GOVT. EMPLOYEE
CELL: 09666457058
ID: http://www.K.khandojirao@yahoo.com

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Shalini

Shalini 2 years ago

Hi
I worked 2 years for a public sector bank and have resigned last month.
On checking my nps contribution and its withdrawal procedure I found this
Resignation: On resignation of the subscriber, 80% of the corpus has to be annuitized and the subscriber can withdraw remaining wealth!

Could anyone explain me this?

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Veeraf

Veeraf 2 years ago in reply to Shalini

lets say amount in NPS is 1 lac; you will have to deposit 80K into annuity and rest 20K you can get it from NPS.

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Shalini

Shalini 2 years ago in reply to Veeraf

Thank you for your reply Mr. veeraf
I have a few more doubts
What nps site says is
What is Annuity?

Annuity in the context of NPS refers to the monthly sum that will be received by the subscriber from the Annuity Service Provider after he attains the age of 60.

does that mean i will receive my 80k after attaining age of 60?? in other words my money is blocked!!

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Veeraf

Veeraf 2 years ago in reply to Shalini

To some extend your assumption is correct - you will invest 80K - in an annuity scheme; the money will grow there and you will get it at your retirement age. REtirement age in central governement is 60 years; but in private sector you can retire at 40 years so when you take an Annuity Service then specify ur retirement age as 40 y and you will start to get pension from the age of 40 years. I hope my point is clear. Also you can confirm it with and Annuity Service provider's CSR.

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Shalini

Shalini 2 years ago in reply to Veeraf

Thanks a tonn Mr.Veeraf!

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Reyaz Shaik

Reyaz Shaik 2 weeks ago in reply to Shalini

Shalini,
Yes. You are correct. 80% gets locked in Govt lockers. It will come out only when the subscriber dies(will be given to nominees) or when the subscriber becomes old. Govt puts the reason for this policy as a means to provide support at old age.
I think they will given money when people forget about it. I wonder if we should have some kind of a fundamental right (to manage affairs). It is a pity that such policies exist and they mandate it to us.

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mohal lal

mohal lal 2 years ago

sir i want to withdraw my money from NPA account.can i withdraw money after resign in oct 2012
i am a indian railway employ

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Chennaivaasi

Chennaivaasi 3 years ago

The functions of NPS and other retiral products are pretty much the same. Instead of lobbying for making this similar to LIPs, we should focus on correcting the ills.

My suggestions would be, merge Super Annuation, Employee Provident Fund, GPF, PPF etc., to NPS. This would not only make it popular, get so much of subscriber base but also provide such a huge corpus for the portfolio managers to make better investment choices.

POPs are quite bad, I have a NPS card through ICICI and they have no knowledge about NPS and the respect you get is below par.

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Reyaz Shaik

Reyaz Shaik 2 weeks ago in reply to Chennaivaasi

It is funny that you are worried about the respect and the information you get in some POP even when the existing NPS has lots of flaws and irregularities in their methods. Exempting the people who work in Govt, I would like to congratulate all others who did not opt for this scheme as they are at ease to find their own investment as they see fit rather than getting money locked in this kind of weird system in which Crores of rupees have been locked without the consented will of the subscriber which sorts of make it immoral and unethical if not illegal.
I strongly suggest people not to think about NPS. I have more than 2lakh rupees stuck in NPS when I resigned from Govt early in my career. Now, I do not know in what kind of businesses they are using my money and who they are harming (monetory loss and loss of lives) with the Interest based businesses.

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R Nandy

R Nandy 3 years ago in reply to Chennaivaasi

I think there should also be a regulation so that employees in the private sector are given the option of contributing either in EPF or NPS. Now contribution in EPF is more or less compulsory. Secondly,there should also be no IT deductions if someone transfers(through withdrawal ) from EPF to NPS.
Regarding ICICI, most of the staff are very young and unfortunately don't know much about banking other than routine transactions.I have found them courteous compared to PSU bank staff but are ignorant even of their own bank rules.

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