New Pension System: Will withdrawal issues be addressed?
Moneylife Digital Team 08 September 2011


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.

deepraj dey
2 years ago
Thank you so much for sharing such good Detailed information with us. Its help me out a lot of ways and especially my father. He going to retire next year and he doesn't know much about NPS, but after sharing this blog he got some idea. keep posting and I found some other blogs also hope you find interesting
Sanjay Vishwakarma
6 years ago
I am central government employee and I have 6 lacs rupees in nps fund and I am completed 6.5 yrs of service I want to withdraw partial amount from nps Tier1,How much amount I can withdraw and within how many days.

Reply me

Name -Sanjay Vishwakarma
Mobile no-9930708646
[email protected]
7 years ago
sir i need loan from ndcps for purchase home please guide me
7 years 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,

CELL: 09666457058
ID: http://[email protected]
9 years ago
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?
Replied to Shalini comment 9 years ago
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.
Replied to Veeraf comment 9 years ago
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!!
Replied to Shalini comment 9 years ago
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.
Replied to Veeraf comment 9 years ago
Thanks a tonn Mr.Veeraf!
Reyaz Shaik
Replied to Shalini comment 7 years ago
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.
mohal lal
9 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
1 decade 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.
Reyaz Shaik
Replied to Chennaivaasi comment 7 years ago
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.
R Nandy
Replied to Chennaivaasi comment 1 decade ago
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.
1 decade ago
They do not have a plan to activate the NPS card in case the first checque has been delayed - not all POS knows the eact rules for the functioning.
Madhusudan Thakkar
1 decade ago
NPS will never succeed without AGENTS.These type of schemes need to be properly explained to people.Like life insurance this is also SOLD.The success of HEALTH INSURANCE in recent times is ONLY because of Agents.All Life Insurance agents should be allowed to sell this scheme and
Replied to Madhusudan Thakkar comment 7 years ago
Then NPS should also have Direct and Regular plans like Mutual Funds where people going for direct route will keep enjoying the low 0.25% expense ratio while the Regular plan can have expense ratio as high as 1% to cover for Agent commission.

I believe this is one of the best distribution models for any scheme where it leaves both the investor and agent happy and sources of ambiguity are minimized.
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