Those subscribers who have closed their NPS accounts can open a new account as per increased age eligibility norms.
The Pension Fund Regulatory and Development Authority (PFRDA) has increased the entry age of the National Pension System (NPS) to 70 years from 65 years. Any Indian citizen, resident or non-resident and Overseas Citizen of India between the age of 65-70 years can join NPS and continue or defer their NPS account up to the age of 75 years. Those subscribers who have closed their NPS accounts can open a new account as per increased age eligibility norms.
In fact, the regulator amended the rules for existing subscribers to continue to subscribe in the pension fund till 70 years. A subscriber has to write to NPS trust or any intermediary at least 15 days before turning 60 or retiring. The subscriber will also have the option to defer the purchase of annuity for a maximum period of three years from the date of turning 60 or retiring.
The regulator in a circular has said that a subscriber joining NPS after the age of 65 years can exercise the choice of pension fund and asset allocation with maximum equity exposure of 15% and 50% under auto and active choice, respectively. A subscriber can change the pension fund once a year and the asset allocation can be changed twice.
At present, private sector subscribers of NPS can invest up to 75% in equity under the active choice option. One can opt for the life cycle fund where the equity exposure will reduce as one grows older. The three life cycle funds are: moderate life cycle fund (with 50% equity cap), aggressive life cycle fund (LC 75) with 75% equity cap and the third, conservative life cycle fund (LC 25) with cap on equity at 25%.
Exit and withdrawals
A subscriber who joins NPS after the age of 65 can exit after three years. He will have to utilise at least 40% of the corpus for purchase of annuity and the remaining amount can be withdrawn as lump sum. However, if the corpus is equal to or less than `5 lakh, then he can withdraw the entire accumulated pension wealth in lump sum.
Any exit before completion of three years will be treated as premature exit. Under pre-mature exit, the subscriber will have to utilise at least 80% of the corpus for purchase of annuity and the remaining can be withdrawn in lump sum. However, if the corpus is equal to or less than `2.5 lakh, the subscriber can withdraw the entire accumulated pension wealth in lump sum. In case of unfortunate death of the subscriber, the entire corpus will be paid to the nominee of the subscriber as lump sum.
Tier II account
Subscribers beyond the age of 65 years can open a Tier II account for investing their disposable income. A Tier II account allows a subscriber to withdraw money at any point of time without any restriction or penalty. Contributions towards the Tier II account can be made using the PRAN and a subscriber can choose between equity funds, government securities and fixed income instruments.
However, one does not get any tax benefit on the investment made in a Tier II account as it does not have a locking period for funds unlike Tier 1 account. Moreover, withdrawals from a Tier II account are taxed. Withdrawals within a year of investment attract short-term capital tax while those after a year of depositing earn long-term capital tax. In a Tier I account, a subscriber gets a tax benefit of `1.5 lakh under Section 80 of Income Tax Act. Additionally, the subscriber gets a tax deduction for `50,000 under Section 80CCD 1(B). The maturity proceeds are exempt from tax.