Pension Funds Withdrawal Rules For 2024

Does your post-retirement life include a beautiful cottage beside a lake? Or an elaborate trip around the world? No matter how you plan to spend your golden years, it takes proper and early planning to turn your vision into reality.

Most retirement schemes lock in your funds for a certain period. But what if you have a financial emergency and need to withdraw the funds before retirement? Well, long-term investment plans like the National Pension Scheme allow premature fund withdrawal or early exit under certain conditions.

These are based on the type of account you have. Here's everything you need to know about pension scheme withdrawal rules in 2025.

What are NPS withdrawal rules?

The National Pension System (NPS) is a government-backed retirement savings scheme offering flexibility in contributions and withdrawals. However, its withdrawal rules are structured to ensure financial security post-retirement.

NPS withdrawal rules differ for various employees in different situations.

NPS withdrawal rules for corporate sector employees on retirement

Corporate sector employees retiring under NPS can withdraw up to 60% of their accumulated corpus as a lump sum. This amount is tax-free. The remaining 40% must be used to purchase an annuity, ensuring a steady income stream post-retirement. If the total corpus is ₹5 lakh or less, the entire amount can be withdrawn as a lump sum without purchasing an annuity.

NPS withdrawal rules for corporate sector employees on early retirement

In case of early retirement before the age of 60, corporate sector employees can withdraw from their NPS account if they have been invested for at least 5 years.

They will have to use 80% of their corpus to purchase an annuity. Only 20% can be withdrawn as a lump sum. However, if the total corpus is ₹2.5 lakh or less, the entire amount can be withdrawn without annuity requirements.

NPS withdrawal rules related to the death of corporate sector employees

In the event of a corporate employee’s death, the nominee or legal heir receives the entire accumulated corpus. Nominees can choose to buy an annuity plan if they want.

NPS withdrawal rules for govt employees on retirement

For government employees, up to 60% of the corpus can be withdrawn tax-free upon retirement. The remaining 40% must be used to purchase an annuity to provide a lifelong pension. If the total corpus is ₹5 lakh or less, the employee can withdraw the entire amount.

NPS withdrawal rules for govt employees on early retirement

In cases of early retirement (before 60 years), government employees must use 80% of the corpus to buy an annuity, while 20% can be withdrawn as a lump sum. If the corpus is ₹2.5 lakh or less, the full amount can be withdrawn without purchasing an annuity.

NPS withdrawal rules for government employees in case of death

If a government employee under NPS passes away, the nominee or legal heir receives the entire corpus as a lump sum, up to Rs. 5 lakhs. This provision ensures financial relief for the family, with no restrictions on how the corpus is used.

However, if the corpus exceeds Rs. 5 lakhs, 80% of the corpus has to be used to buy a default annuity plan and the remaining 20% will be given to the nominee or legal heir as a lump sum payment.

Pension fund withdrawal process for tier 2 account

If you have a tier 2 account, there are no restrictions for pension fund withdrawal. This means you can withdraw the money anytime you want. All you need to do is fill out the UOS–S12 form and submit it to the POP, along with relevant documents. Once the POP initiates the pension fund withdrawal process, you will receive the funds within three days.

Sounds amazing, right? But there's a catch. Although tier 2 accounts offer more flexibility in terms of withdrawing the funds, they do not provide any tax benefits.

Pension fund withdrawal process for tier 1 account

Tier 1 accounts have less flexibility than tier 2 accounts, but they extend tax benefits under Section 80C of the Income Tax Act. You must abide by certain rules for pension fund withdrawal under this account. These rules are based on the amount and type of withdrawal. Let's dive into them in detail.

Pension fund withdrawal after maturity

NPS usually matures when you reach the age of 60. However, you can choose to extend the maturity until you reach 75. Here are the rules for withdrawing the funds after maturity-

• You can withdraw up to 60% of the amount in a lump sum and invest the remaining funds in an annuity scheme.
• The annuity funds will invest in an assortment of financial assets to potentially grow your annuity payments.

To invest in NPS, you must be between 17 and 70 years of age. However, if you start the investment at 65 years or over, you must follow these rules-

• You must be subscribed for at least three years.
• If your corpus is less than Rs. 5 lakhs, you can withdraw the entire amount.
• If your corpus is more than Rs. 5 lakhs, you have to follow the 60:40 rule.
• For an early withdrawal before three years, if your total corpus exceeds Rs. 2.5 lakhs, you can withdraw up to 20% of the amount. If it doesn't, you can withdraw the entire amount.

Pension fund withdrawal before maturity

If you wish to withdraw the funds before maturity, there are two situations- partial withdrawal and early voluntary retirement. Both of them have different sets of rules. If you're in urgent need of cash, you can opt for partial withdrawal. For this,

• You must be a subscriber for a minimum of three years.
• You can withdraw a maximum of 25% of the total corpus.
• You need to submit a request for the pension fund withdrawal online.

Even after meeting these criteria, only certain reasons are allowed for partial withdrawal. These include-

• Higher education of children
• Marriage of children
• Buying your first house either in your name or jointly with your spouse
• Severe illnesses like cancer, kidney failure, stroke, etc.
• Serious or life-threatening accidents
• Other illnesses specified by the PFRDA

If you choose to retire before 60 years, you can claim a voluntary retirement withdrawal. For this,

• You must be a subscriber for a minimum of 10 years.
• You can only withdraw up to 20% of the total corpus if it exceeds Rs. 2.5 lakhs.
• You can withdraw the entire amount if it's less than Rs. 2.5 lakhs.

Pension fund withdrawal after death

In the event of your death before maturity, your legal heir or nominee can claim the entire amount for pension fund withdrawal. However, if you're a government employee, your heirs/nominees have to set aside a certain percentage for the annuity plan.

Pension fund withdrawal process

You can easily make pension fund withdrawals online or offline. For an offline process, fill in the relevant form and submit it at the nearest POP along with the required documents.

To initiate pension fund withdrawal online, follow these steps-

• Log in to the official NSDL – CRA website with your user ID or PRAN.
• Select 'withdrawal' from the 'transact online' tab.
• Select your desired withdrawal option, enter your PRAN, and click on 'submit.'
• Enter the reason and percentage of withdrawal and click on 'submit.'

To conclude

Understanding the withdrawal rules of the National Pension System (NPS) is crucial for making informed decisions about your retirement savings. The flexibility to partially withdraw for emergencies, the tax benefits on lump sum withdrawals, and provisions for early retirement or unforeseen circumstances like death make NPS an excellent scheme for varied financial needs.

These pension scheme withdrawal rules make it easy for you to withdraw a percentage of your corpus in times of a financial emergency. With Tata Capital's Moneyfy app, you can open and manage your NPS account on the go. Our professionally managed investments are market-linked to ensure superior returns. Download the app today!

FAQs on NPS Withdrawal Rules 2024

Where can I find NPS withdrawal forms?

NPS withdrawal forms are available on the official NPS website (CRA portal) or through Points of Presence (PoPs) like banks and financial institutions authorised by the scheme.

What are the different types of withdrawal forms?

The main NPS withdrawal forms include different forms for partial withdrawal, superannuation withdrawal (retirement), and premature exit. Each form corresponds to a specific type of withdrawal request.

What are the conditions for partial withdrawal from a Tier 1 account?

Partial withdrawal from a Tier 1 account is allowed for specific reasons like education, marriage, medical emergencies, or purchasing a house. You can withdraw up to 25% of your contributions after three years of account opening.

Can I request a withdrawal from my NPS account online?

NPS withdrawals can be requested online via the CRA portal. Log in, submit the required details, upload necessary documents, and complete the process digitally for faster approvals.