National Pension Scheme (NPS) is the Central Government's social security initiative that was started for government employees but later opened to those working in the private and unorganized sectors as well with an exception of those who work for the armed forces.

Subscribers have to make investments towards their NPS account at regular intervals during their course of employment. On retirement, the NPS members will get a certain portion of their investment as corpus and the remaining will be paid to them as monthly pension.

Ideally, since it is a retirement scheme, one is required to continue investing until the age of 60 years (also known as the age of superannuation). However, for those who choose to retire sooner, NPS has a provision for voluntary retirement/exit prior to the age of superannuation for government employees without linking it with the minimum number of 20 years of service.

The rules on exit from NPS on voluntary retirement are defined by PFRDA (Pension Fund Regulatory and Development Authority) under its "Exits and Withdrawals Under the National Pension System Regulations, 2015".

What is an exit?

An exit is when an NPS subscriber closes his/her individual pension account under the scheme. It can be done at any point but complete withdrawal of the sum invested is subject to certain conditions.

Pre-mature exit and voluntary retirement are the same when it comes to NPS, that is when a subscriber chooses to exit before the superannuation/retirement age.

What are the benefits/restrictions on pre-mature exit/voluntary retirement?

• Minimum annuitisation: 80% of accumulated wealth
• Maximum lumpsum withdrawal: 20% of accumulated wealth

"3(b) where the subscriber who, before attaining the age of superannuation prescribed by the service rules applicable to him or her, voluntarily retires or exits, then at least eighty per cent out of the accumulated pension wealth of the subscriber shall mandatorily be utilized for purchase of annuity and the balance of the accumulated pension wealth, after such utilization, shall be paid to the subscriber in lump sum or he shall have a choice to collect such remaining pension wealth in accordance with the other options specified by the Authority from time to time, in the interest of the subscribers"

When the subscriber's accumulated pension wealth is less than or equal to Rs 1 lakh or a limit specified by PFRDA, the subscriber will have the option to withdraw the entire accumulated pension wealth without purchasing any annuity.

A subscriber cannot defer his/her lump sum in case of pre-mature exit, a provision available to those who wait till superannuation.

For government employees, the benefit of retirement gratuity and death gratuity has been extended to Government employees covered under NPS on the same terms and conditions as are applicable under CCS (Pension) Rules, 1972, as per a press release by the Ministry of Finance dated 23 July 2019.

Further, in a Gazette Notification dated 31 January 2019, the mandatory contribution by the Central Government for its employees covered under NPS Tier-I has been enhanced from the existing 10 percent of the basic pay + DA (dearness allowance) to 14 percent of the basic pay + DA. The employees' contribution rate would remain at the existing 10 percent of basic pay + DA.