New Withdrawal Rules of NPS due to COVID -19

2020 so far has been the year of the global pandemic created by Coronavirus. It has impacted the health and wealth of millions of people across the world. Closer home a sluggish economy, pay-cuts, lay-offs and a general sense of insecurity surround all of us. In such unprecedented times, even the smallest help or concession can help make lives of people easier and happier. With this same thought in mind, PFRDA (Pension Funds Regulatory and Development Authority of India) has announced some revision regarding the NPS withdrawal rules.

NPS and its features

NPS or National Pension Scheme is a government-backed pension cum investment scheme. Participation in this social- security scheme is voluntary in nature. Though at the time of launch (2004) it was intended only for government employees in 2009 it was made open to all employees (irrespective of sector – i.e. public, private or unorganized sector) except those part of the Armed Forces. 

Some key features of this scheme are:

1. All Indian citizens (from the age group of 18-60 years) are eligible to join this scheme, provided they comply with the KYC guidelines.
2. Even NRIs can take part in this saving scheme. However, if there is any modification in the NRI’s citizenship status, the membership will get closed.
3. There are two ways to invest in NPS Online and Offline.
4. The funds are managed by PFRDA authorized managers also known as NPS Fund Managers. Currently, subscribers can choose from 8 NPS Fund Managers –
   • Aditya Birla Sun Life Pension Management Limited
   • HDFC Pension Management Company Limited
   • ICICI Prudential Pension Funds Management Company Limited
   • Kotak Mahindra Pension Fund Limited
   • LIC Pension Fund
   • SBI Pension Funds Private Limited
   • UTI Retirement Solutions Limited
   • Reliance Capital Pension Fund

5. In case you are not satisfied with the performance of the scheme or NPS Fund manager, you have the freedom to request a change. This benefit is extended to all accounts (Tier-I and Tier-II)
6. NPS allocates its corpus across different schemes. You cannot invest more than half of your investment in the equity market. 
7. NPS qualifies for tax deduction at all stages – investment, accrual and maturity. Investments made in NPS can be claimed for a tax deduction as per Section 80C of the Income Tax Act. Moreover, Section 80CCD(1B) allows additional investment (till Rs. 50,000) to be put forward for tax deduction. For subscribers falling in the highest tax slab, this can translate into yearly tax savings to the tune of Rs. 15,600.

Pre-corona withdrawal rules

National Pension Scheme allows its investors to make early withdrawals (i.e. before attaining the age of 60), provided:

• The contribution has been done for a minimum period of three years
• Withdrawal request cannot be more than 25% of the invested amount
• More than three requests have not been made 
• The withdrawal is for purposes like child’s education or marriage, construction or acquisition of a residential house, treatment of critical diseases

New withdrawal rules due to Covid-19

COVID-19 has been categorized as a global pandemic by WHO. Taking the fact that this is a critical and life-threatening illness, PFRDA has now allowed partial withdrawals by subscribers to fund Covid-19 treatment expenses. The announcement was made on 9^th April 2020. The rules for the same are:

• The withdrawal request can be made for meeting the financial expenses for treatment of self, spouse (legally wedded), children (biological and adopted) and dependent parents.
• In order to avail this facility, you need to submit the withdrawal request along with a medical certificate. The request can be done digitally using the NPS online portal or through the offline mode. If taking the NPS Online route, they need to initiate the request by logging into the portal using their 12-digit PRAN (Permanent Retirement Account Number) details.
• This benefit will not be extended to subscribers of Atal Pension Yojana (APY).
• The withdrawal amount cannot go beyond 25% of the total contribution made.

Final Words

Health is wealth. So, if you are facing an immense financial crunch and need funds for medical treatment (Covid-19 related), you can look towards your NPS account. However, try to ensure that it is the last resort because it means taking away from your retirement savings.