NPS Withdrawal: How does the ‘penny drop’ feature work?

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Updated: August 10, 2021 4:23 PM

Penny drop is used for verification of bank account, which will help investors as NPS authorities will first verify the bank account and then initiate the withdrawal request.

National Pension System, NPS, penny drop, additional tax benefit on NPS contribution, 80C benefit, income tax benefits, retirement corpus, same day NAV, SIP, Direct Remittance, D-RemitOnce the withdrawal request is verified and authorized in the CRS system, the proceeds are then credited to the subscriber's bank account.

Pension regulator PFRDA has brought in Instant Bank Account verification by ‘penny drop’ feature to help NPS subscribers, and protect their interest for timely credit of amount in case of withdrawal. Penny drop is used for verification of bank accounts and would be adopted by Central Record-Keeping (CRA) agencies. Once the withdrawal request is verified and authorized in the CRS system, the proceeds are then credited to the subscriber’s bank account.

Having said that, when an NPS subscriber places a withdrawal request by mentioning the required details such as bank account number and IFSC code, etc. for the withdrawal proceeds, sometimes the amount does not get credited. In some cases due to account-related issues such as invalid/wrong account number, account type, wrong IFSC code, name mismatch, dormant or frozen account, etc. the subscribers’ withdrawal amount does not get credited into the savings bank account. That’s when the ‘penny drop’ facility comes into play.

NPS withdrawal: Re 1 ‘penny drop’ feature

Penny drop is used for verification of bank account, which will help investors as NPS authorities will first verify the bank account and then initiate the withdrawal request.

Harshad Chetanwala, Co-Founder, MyWealthGrowth.com says, “Using the penny drop feature, delay in receiving NPS withdrawal at investors end will be avoided. There were issues like invalid bank account or failure in crediting the withdrawal amount because of incorrect bank details.”

In the ‘penny drop’ process, the bank account will be verified by making the ‘test transaction’ by dropping Re 1 in the subscriber’s registered bank account. KFintech CRA (KCRA) will check if the bank details provided by the NPS subscriber is active and valid and the name in a bank account is the same as in PRAN. Once the user captures the withdrawal request, KCRA will check the details instantly. If there is a success, the user will be allowed to complete his/her withdrawal request.

Sreekanth Nadella, CEO, KFin Technologies says, “If the penny drop transaction fails for a subscriber, or there is a mismatch in name, he/she will not be allowed to capture the withdrawal request. Subscriber has to provide the correct bank details to submit his/her withdrawal request.”

He further adds, “Penny drop is a chargeable transaction and charges are recovered from the subscriber’s NPS Account. KCRA is the first CRA to implement the penny drop process in Partial Withdrawal and Bank details updating process.”

The response of ‘Success’ or ‘Failure’ after the penny drop feature would be given by the service provider based on validation of the savings account number, as per CRA records. In case the bank account details are or other details are not correct, an alternate account number or additional supporting documents needs to be submitted for updating the records.

How to make NPS work as an investment vehicle?

Industry experts say NPS can work as an additional instrument along with other investment options to build one’s retirement corpus. NPS give an individual the option of investing in equity, government bonds and corporate bonds where these funds are managed by fund managers at a very low cost. This offers options for investors across different age groups to consider NPS.

Having said that, Chetanwala says, “NPS has a lock-in up to the age of 60 and it only allows withdrawal 3 times throughout the tenure, this impact the liquidity of investor. Hence, one may use NPS along with other investment options for retirement.”

Recent changes in NPS schemes to help subscribers

There have been few changes in NPS schemes recently to help subscribers, with some prominent ones such as allowing complete withdrawal of NPS if the accumulated balance of one’s pension account is up to Rs 5 lakhs and the partial withdrawals can be done by NPS investors through self-declaration where the subscriber does not need to provide any supporting document.

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