NPS at 60 — What Happens to Your Corpus at Retirement
The rules governing NPS withdrawal, annuity purchase and lump sum options are often misunderstood. This article explains what subscribers can expect at retirement age.
Mr Vijay Krishnamurthy, 59, had been contributing to the National Pension System for eighteen years through his employer in Chennai. As his planned retirement date approached, he found that the rules governing what happens to his NPS corpus at age 60 were less straightforward than he had assumed. (Illustrative account — not a real identifiable case.)
The NPS is a defined contribution scheme. Unlike EPS-95, which provides a formula-based monthly pension, NPS accumulates a corpus over the working years and requires decisions at retirement about how that corpus is used. Understanding these rules in advance helps subscribers think through their options.
The Basic Structure at Retirement
When an NPS subscriber reaches age 60, they are required to use at least 40% of their accumulated corpus to purchase an annuity from a PFRDA-empanelled life insurance company. This annuity provides a monthly income for life. The remaining 60% can be withdrawn as a lump sum, which is tax-free under current income tax rules.
Subscribers who choose to defer the lump sum withdrawal can continue contributing to NPS up to age 75. This may be appropriate for those who remain employed after 60 or who do not require immediate access to the full corpus.
Annuity Options
The annuity purchased with the mandatory 40% of corpus comes in several variants. The main choices include a single life annuity (income for the subscriber's lifetime only), a joint life annuity (income continues for the spouse after the subscriber's death), and annuities with or without return of purchase price to nominees. The monthly income from each variant differs — annuities with more survivor benefits typically produce a lower monthly amount.
The annuity income is taxable as income in the hands of the subscriber.
"Understanding NPS withdrawal rules before retirement, rather than at retirement, gives subscribers more time to think through their options."
— Overview of NPS retirement provisions, PFRDA documentationWhat to Check at Your NPS Account
- Your current NPS corpus — available at npscra.nsdl.co.in or the NPS mobile app
- Your asset allocation (equity, corporate bonds, government securities) and whether it is appropriate for your timeline
- The list of PFRDA-empanelled annuity providers and indicative rates
- Whether you have a Tier II account in addition to Tier I, and the withdrawal rules for each
- Your nomination details — ensure they are current
Early Exit and Partial Withdrawal
NPS also allows for partial withdrawals before retirement under specific conditions — for higher education, marriage of children, purchase or construction of a house, or treatment of serious illness. These are subject to conditions including a minimum tenure of three years and a limit on the amount that can be withdrawn.
Subscribers who exit NPS before age 60 (other than in cases of death or disability) must use at least 80% of their corpus to purchase an annuity, with only 20% available as a lump sum.