NPS Vatsalya Scheme update: PFRDA makes partial withdrawal, exit rules more attractive; check details

PFRDA makes partial withdrawal, exit rules more attractive

• NPS Vatsalya Scheme allows partial withdrawals after 3 years.
• Subscribers can withdraw 25% for education, medical, or disabilities.
• Exit options now more flexible, including lump sum and annuity choices

Did our AI summary help?

In a bid to make the NPS Vatsalya Scheme more attractive for its subscribers, PFRDA has made certain changes to the exit and withdrawal options under the scheme, designed exclusively for minors. NPS Vatsalya is a pension-linked savings product designed exclusively for minors, allowing parents and legal guardians to build a long-term corpus for their children.

The revised rules aim to offer greater liquidity and flexibility while maintaining the long-term savings objective of the scheme.

Partial withdrawals allowed after three years

Under the updated guidelines, partial withdrawals will now be permitted after three years from account opening. This is a significant relaxation compared to earlier norms, giving families access to funds during genuine financial needs.

As per the finance ministry, subscribers can withdraw up to 25 per cent of own contributions (excluding returns) for specific purposes like education, medical treatment and specified disabilities.

Withdrawal frequency revised

The revised rules also change the number of times partial withdrawals can be made. Partial withdrawals are now allowed twice before the subscriber turns 18 years and twice between 18-21 years, subject to conditions

Earlier, partial withdrawals can be made up to 3 times until the subscriber attains 18 years of age.

More flexible exit options introduced

As regards the exit option, PFRDA has introduced greater flexibility. It said subscribers would have the option to shift to NPS Tier I (All Citizen Model or any other applicable model) or exit with up to 80 per cent as a lump sum, with a minimum of 20 per cent to be annuitised. Full withdrawal will be permitted if corpus is Rs 8 lakh or less, it added.

Earlier, at least 80 per cent of the accumulated corpus available in the account must be utilized for the purchase of an annuity, and the remaining balance shall be paid in a lump sum.

What is NPS Vatsalya scheme

NPS Vatsalya was announced in the Union Budget for FY 2024-25 and subsequently launched on September 18, 2024, by Finance Minister Nirmala Sitharaman.

The scheme enables parents and legal guardians to systematically build long-term savings for their children from an early age, with a provision to shift to the National Pension System upon attaining majority.

In line with the amendments notified to the PFRDA (Exits and Withdrawals under NPS) Regulations, 2015, the NPS Vatsalya Guidelines lay down flexible provisions for long-term financial security of minors, while ensuring continuity of savings on attaining majority, it said.

Vishwajeet Goel, Head of Pensionbazaar.com, hailed the latest changes brought in the scheme. In a statement he said, “NPS Vatsalya’s updated framework is a commendable move by the regulator. By allowing flexible withdrawals for education and critical needs precisely when they are needed most, the PFRDA has addressed one of the most capital-intensive phases for any household, when a child typically pursues higher education.

Under the new rules, subscribers can withdraw up to 80% of the corpus as a lump sum between the ages of 18 and 21, and even 100% if the total corpus is below the ₹8 lakh threshold, significantly enhancing liquidity and financial choice for parents. This added flexibility makes NPS Vatsalya a far more practical tool for parents looking to invest in early savings for their children’s future.

Coupled with the benefit of a lower minimum annual contribution and potential tax deductions on contributions, this product offers parents a powerful and flexible investment avenue that supports both long-term retirement planning and near-term educational or medical needs.”

With PTI Input