Pension plans come in many forms. Each is designed to help you build a secure future. But over time, what once felt like a solid plan might start to feel rigid or misaligned with your current goals. Life changes and so do financial needs.
Among the various types of pension plans available, the National Pension System (NPS) is one of the most widely chosen. In this blog, we’ll take a closer look at NPS and explore what it really means to exit the plan before retirement.
About NPS
The National Pension System (NPS) is a government-backed retirement savings plan. It helps you build a steady fund for life after retirement. It’s open to all Indian citizens between 18 and 70 years of age.
You invest money regularly and it gets divided into different types of funds like equity and government bonds. Over time, your money grows. When you retire, you can withdraw part of it as a lump sum and use the rest to get a regular pension. NPS also gives you tax benefits while you’re saving.
Can You Have an Early Exit in NPS?
Signing up for the National Pension System (NPS) feels like a smart move for the long run. But what if you want to exit earlier than expected? Whether due to financial needs, career changes or life events, the question of withdrawing from NPS before retirement isn’t unusual. While the plan does encourage long-term savings, it also provides flexibility for those who need to make an early exit. Here’s a look at how that works and what to keep in mind before taking any steps.
When and How Can You Exit NPS?
There are different ways to exit NPS depending on when and why you want to do it. Let’s break them down.
Exit at Retirement (60 Years)
This is the most common way to exit NPS. Once you turn 60:
- You must use at least 40% of your NPS corpus to buy an annuity. This gives you regular monthly income after retirement.
- The remaining 60% can be withdrawn as a lump sum.
- If your total NPS savings are less than Rs. 5 Lakhs, you can withdraw the full amount without buying an annuity.
Early Exit (Before 60 Years)
If you need to exit NPS before the age of 60, here’s what applies:
- You must have stayed invested in NPS for at least 5 years.
- At least 80% of your total savings must go into buying an annuity.
- Only 20% can be withdrawn as a lump sum.
- However, if your total NPS savings are less than Rs. 2.5 Lakhs, you can withdraw the full amount after 5 years.
Exit Due to Death
In case the NPS account holder passes away, the nominee or legal heir is allowed to withdraw the entire NPS balance. There is no need to buy an annuity in this case.
Exit Rules Based on Employment or Personal Situation
The NPS exit rules also differ slightly depending on your work status or specific life events.
If You’re a Government or Private Sector Employee
- The same rules apply for both. A minimum of 40% must go into an annuity.
- If your total corpus is less than Rs. 2 Lakhs, you can withdraw the full amount.
- You can also choose to delay withdrawing the lump sum until the age of 70.
- If You Take Voluntary Retirement from the Corporate Sector
- In such cases, 80% of your NPS savings must be used to buy an annuity.
- If your total savings are less than Rs. 1 Lakh, full withdrawal is allowed.
In Case of a Corporate Employee’s Death
The nominee can withdraw the full amount as a lump sum without any restrictions.
Partial Withdrawals Before Exit
NPS allows you to make partial withdrawals even if you don’t want to exit fully:
- You must be in NPS for at least 3 years before you can withdraw.
- You can withdraw up to 25% of your own contributions (excluding employer’s share).
- These partial withdrawals are allowed only for specific reasons like higher education, illness, marriage or home purchase.
- You can make up to three such withdrawals during your subscription, with a gap of five years between each.
Should You Exit Early?
It’s possible to exit early, but not always ideal. NPS is designed to help you save steadily and grow your funds over a long period. Exiting early might mean lower returns, fewer benefits and loss of future income.
It’s best to evaluate why you’re considering an early exit and whether it aligns with your long-term financial needs. If in doubt, you can use a retirement calculator to get a clear picture of how much you would receive at maturity and how much you stand to lose by exiting now.
