When you open a National Pension System (NPS) account, you're required to make a minimum annual contribution to keep the account active and reap the benefits of this long-term investment for retirement. If you fail to meet this contribution requirement, your account can be frozen, limiting your access to manage your investments or make additional deposits.
While the NPS remains one of India's most popular retirement savings schemes due to its tax advantages and flexible investment options, missing contributions can interrupt your retirement planning, reduce your potential corpus, and result in the loss of tax benefits.
Here's what happens if you don’t contribute the minimum amount to your NPS account:
1. NPS account becomes frozen
If the minimum annual contribution isn’t made, your NPS account will become frozen. When this happens, you lose the ability to make further transactions or changes, like switching fund managers or making additional contributions.
2. Penalty to reactivate the account
Reactivating a frozen account requires paying a penalty of Rs. 100, along with making the necessary contributions to meet the shortfall. For example, if you have contributed less than Rs. 1,000 in the current year, you’ll need to make up for the difference.
3. Impact on retirement savings
Missing contributions can slow down the growth of your retirement corpus, which builds over time through regular investments and compounding returns. A frozen account disrupts this accumulation, potentially reducing your overall retirement savings.
4. Loss of tax benefits
One of the key advantages of the NPS is its tax benefits under Section 80C and 80CCD(1B). If your account becomes frozen due to missed contributions, you may not be able to claim these deductions for that financial year.
5. Disruptions in fund growth
In NPS, your contributions are invested in various funds that offer market-linked returns. If you fail to contribute, you might lose out on potential returns. While the funds you’ve already invested in will continue to grow, the absence of regular contributions might slow down the growth of your retirement corpus.
6. Long-term financial impact
Over time, missing even one year of contribution can have a ripple effect on your retirement goals. Consistency in investing through NPS helps to build a substantial retirement corpus. Missing contributions may delay or reduce the retirement benefits you could receive at the time of withdrawal.
7. Steps to reactivate your frozen NPS account
If your NPS account gets frozen, you can reactivate it by following these steps:
Log into your NPS account online.
Contribute the minimum amount needed (Rs. 1,000) and any shortfall from the previous year.
Pay the Rs. 100 reactivation fee. Once these steps are completed, your account will be reactivated, and you can resume your contributions and transactions.
Missing the minimum annual contribution in your NPS account can lead to a frozen account, penalties, and potential disruptions in your retirement savings plan. It’s essential to maintain consistency in contributions to ensure your account remains active and continues to build your retirement corpus effectively. If your account becomes frozen, the good news is that it can be reactivated with a small penalty and by making the required contribution.
Being proactive in managing your NPS account helps you stay on track for a financially secure retirement.
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