A reader says, “There is an option of ” continuation of NPS” till 75 years of age where subscriber can continue contributing. I want to confirm if the annuity is not required to be purchased till 75 years if this continuation option is selected”.
The NPS exit and withdrawal rules have been amended so often that it is hard to appreciate current options. So, let us summarise them before addressing the reader’s question.
There are three options when the subscriber reaches age 60 or is superannuated from his job (if the employer offers the NPS).
Option 1: Normal exit. Here, the subscriber has to buy an annuity for at least 40% of the accumulated corpus, and the rest can be withdrawn free of tax in one shot.
Options 2: Continuation. Extend the time of withdrawal to any age between 61 and 75. The subscriber can continue to invest normally and get tax benefits as usual. This is a smart choice for those who do not need the NPS corpus immediately. An annuity purchased at an older age will offer a higher interest rate. Also, the total taxable income at older may be lower for some people. See Higher annuity rates of LIC Jeevan Akshay applicable from Feb 2023.
Option 3: Defferment. This option has different choices, but no further contributions are allowed.
- Deferred Lump sum – (Lump sum part will be deferred till 75 years of age – No contribution is allowed)
- Deferred annuity – (Annuity part will be deferred for 3 years – No contribution is allowed)
- Defer Both – (Annuity will be deferred for 3 years & Lump sum will be deferred for 15 years, i.e. till 75 years of age – No contribution is allowed)
- Systematic Lump sum Withdrawal (SLW). The lump sum can be paid systematically on a periodical basis, viz monthly, quarterly, half-yearly or annually for a period until the age of 75 in an automated manner with a one-time request. Note: The annuity clause (minimum 40%) is still mandatory. This Systematic Lump sum Withdrawal (SLW) only applies to the remaining amount. Subscribers can either opt for annuity immediately or defer annuity till 75 years.
Now, the reader wants to know the following. Suppose we choose option 2, continuation up to age 75. Does this mean the annuity can be purchased at age 75?
Yes, you can continue contributions up to any age between 61 and 75, and the annuity purchased can be deferred to the end of this period. As long as the contributions continue, there is no obligation to choose an exit option. You can exit anytime before age 75 after choosing the continue option and then choose exit options.
Can the annuity be deferred to age 75 without choosing the “continue” option? Yes, this is also possible, although the NPS forms need to be updated to reflect current rules.
- The Oct 2023 circular says, “As per the existing withdrawal guidelines, the subscribers post 60 years/superannuation, can defer availing annuity & withdrawing the lump sum on any combination till 75 years”.
- The exposure draft on SLW says, ‘SLW will be applicable only for the lump sum portion. Subscriber can either opt for annuity immediately or defer annuity till 75 years.”
- The FAQ on NPS Exit Rules says,” Can I defer the purchase of annuity?
Yes, you can defer the purchase of an annuity. Such deferment can be up to the age of seventy-five years. ” All see list of all NPS FAQs. Another FAQ document also supports the above.
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