National Pension Scheme: Penny drop to validate NPS subscriber details

Moreover, the CRAs will have to inform the subscriber to not modify or close the existing bank account once the exit or partial withdrawal request is given till the time the amount is credited to the account.

In order to resolve problems faced in making payments to subscribers on exit or partial withdrawal from the National Pension Scheme (NPS), the pension fund regulator has initiated Instant Bank Account Verification by ‘penny drop’. It will be done by the central record keeping agencies (CRA) by integrating their information technology system and exit framework with the fin-tech service providers.

This initiative by Pension Fund Regulatory and Development Authority (PFRDA) will ensure timely credit of money and additional due diligence to identify the rightful beneficiary as there were instances when the subscribers’ withdrawal amount could not be credited into their savings bank account due to reasons such as invalid account number or account type, invalid or wrong IFSC code, name mismatch, dormant account, etc.

Active status of bank account
Through the penny drop process, the central record agencies will validate the bank account that an individual has provided by remitting `1 and the transaction will validate the details on the name of the account holder, bank, and IFSC with the name in the Permanent Retirement Account Number (PRAN) or as per the documents submitted.

The regulator in its circular has underlined that the ‘penny drop’ can happen at the time of processing of the exit/withdrawal request. The response of success or failure will be provided by the service provider based on validation of the savings bank account number name checked as per CRA—K Fin Technologies (KCRA) and NSDL e-Governance infrastructure (NCRA)—records.

If the bank account details and other details are not correct, the alternate account number or additional supporting documents will have to be submitted for updating the records. In case the penny drop fails at the time of processing, the point-of-presence or the subscriber will be informed to correct the bank account number and resubmit the application so that the withdrawal request can be processed in a time bound manner.

Moreover, the CRAs will have to inform the subscriber to not modify or close the existing bank account once the exit or partial withdrawal request is given till the time the amount is credited to the account.

Partial, premature and final withdrawal
After retirement, a subscriber can withdraw 60% of the accumulated corpus as lump sum and has to mandatorily buy an annuity plan for the 40% of the remaining corpus. It is mandatory for the NPS subscribers to purchase an annuity product from an empanelled life insurance company known as annuity service provider (ASP). The subscriber selects the ASP at the time of submitting the withdrawal request or after the payment of lumpsum withdrawal. However, if the accumulated corpus is less than Rs 5 lakh, then the subscriber can withdraw the entire amount.

In NPS, a subscriber can opt for a premature exit. Any exit, before completion of three years is treated as premature exit. In such a case, 20% of the accumulated corpus can be withdrawn as lumpsum and the rest (80%) is invested with a life insurance company empanelled by PFRDA for buying annuity. However, if the total corpus is less than or equal to Rs 2.5 lakh, then the entire amount can be withdrawn.

A subscriber can go for partial withdrawal for treatment of critical illnesses, higher education of children, marriage of children and for purchase/construction of residence. A subscriber should be in NPS atleast for three years and the amount to be withdrawn should not exceed 25% of the contributions made by the subscriber. The partial withdrawal can be done for a maximum of three times during the entire tenure of subscription.