NPS subscribers aged 65-plus can hold up to 50% equity

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The Pension Fund Regulatory and Development Authority (PFRDA) has made the National Pension System (NPS) more appealing to subscribers who join after the age of 65 by allowing them to invest up to 50% of their funds in equity and relaxing the exit requirements. 

Following the increase in the maximum age for joining the NPS from 65 to 70 years old, the PFRDA has also changed the standards for entry and exit.  

According to a PFRDA circular on the new guidelines, any Indian citizen or Overseas Citizen of India in the age category of 65-70 years can join NPS and continue up to the age of 75 years. It also stated that subscribers who have canceled their NPS accounts are now able to establish a new account due to the revised age eligibility requirements. 

The new guidelines state that any subscriber who joins NPS after the age of 65 can choose between Pension Fund and asset allocation, with a maximum equity exposure of 15% under Auto choice and 50% under Active Choice. Through ‘Active Choice’ or ‘Auto Choice,’ an NPS member can allocate his/ her contributions to different asset classes.

In ‘Active Choice,’ a subscriber has more control over fund allocation across asset classes, whereas in ‘Auto Choice,’ funds are invested in a pre-determined percentage-based as per the age of the subscriber.

Subscriber contributions are invested by PFs following the investment standards for each asset type – stock, corporate bonds, government securities, and alternative assets.

Subscribers who join the social security plan after the age of 65 can only allocate 5% of their savings to alternative assets under Active Choice. This asset type is not included in the Auto Choice option. The PF can be modified once a year; however, the asset allocation can be altered twice.

The circular stated that “normal exit shall be after 3 years” for subscribers joining NPS beyond the age of 65. 

The subscriber will be obliged to use at least 40% of the corpus for the purchase of an annuity, with the remaining amount withdrawn as a lump sum.

However, if the corpus is equal to or less than Rs 5 lakh, the subscriber may choose to take the entire accumulated pension fund in a lump amount.

The PFRDA further stated that leaving before the three-year period is considered a premature exit. Under premature exit, the subscriber is obligated to use at least 80% of the corpus for annuity purchase and the remainder can be withdrawn in a lump sum. In the event of a premature exit, the subscriber may withdraw the full collected amount in one go if the corpus is less than Rs 2.5 lakh.

The PFRDA further said that in the event of the subscriber’s death, the full corpus will be given to the nominee as a lump amount. Other NPS subscribers who have a specified corpus at the time of retirement or reach the age of 60 are required to purchase an annuity offered by insurance firms.

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