National Pension Plan: Penny drop to validate NPS subscriber details

In order to resolve the problems encountered during the payment of subscribers upon leaving or partially withdrawing from the National Retirement System (NPS), the pension fund regulator has launched the instantaneous verification of the bank account by “penny drop”. This will be done by the Central Record Keeping Agencies (CRAs) by integrating their information technology system and exit framework with financial technology service providers.

This initiative by the Pension Fund Development and Regulatory Authority (PFRDA) will ensure timely cash credit and additional due diligence to identify the legitimate beneficiary, as there have been cases where the withdrawal amount of subscribers could not be credited to their savings bank account for reasons such as invalid account number or type of account, invalid or incorrect IFSC code, name mismatch, dormant account, etc.

Active status of bank account
Through the penny deposit process, the central registrars will validate the bank account an individual provided by handing over to 1 and the transaction will validate the details of the account holder name, bank and account holder name. ‘IFSC with the name in the Permanent Retirement Account Number (PRAN) or according to the documents submitted.

The regulator in its circular pointed out that the “penny drop” can occur at the time of the processing of the exit / withdrawal request. The response in case of success or failure will be provided by the service provider based on the validation of the name of the verified savings bank account number in accordance with CRA-K Fin Technologies (KCRA) and NSDL records. -Governance Infrastructure (NCRA).

If the bank account details and other details are not correct, the alternate account number or additional supporting documents will need to be submitted for updating of records. If the penny drop fails at the time of processing, the point of presence or subscriber will be notified to correct the bank account number and resubmit the request so that the withdrawal request can be processed within a limited time frame. .

In addition, CRAs will have to advise the subscriber not to modify or close the existing bank account after the request for exit or partial withdrawal has been made until the amount is credited to the account.

Partial, premature and permanent withdrawal
After retirement, a subscriber can withdraw 60% of the accumulated corpus as a lump sum and must take out an annuity plan for the remaining 40% of the corpus. It is mandatory for NPS subscribers to purchase an annuity product from a life insurance company incorporated as the Annuity Service Provider (ASP). The subscriber selects the ASP when submitting the withdrawal request or after payment of the lump sum withdrawal. However, if the accumulated corpus is less than Rs 5 lakh, the subscriber can withdraw the entire amount.

In NPS, a subscriber can opt for an early exit. Any discharge before the completion of three years is considered a premature discharge. In such a case, 20% of the accumulated corpus can be withdrawn at a lump sum and the rest (80%) is invested with a life insurance company mandated by the PFRDA for the annuity buyback. However, if the total corpus is less than or equal to Rs 2.5 lakh, the total amount can be withdrawn.

A subscriber can opt for partial opt-out for critical illness treatment, children’s higher education, child marriage, and home purchase / construction. A subscriber must have been in NPS for at least three years and the amount to be withdrawn must not exceed 25% of the contributions made by the subscriber. Partial withdrawal can be made a maximum of three times during the duration of the subscription.