The National Pension System (NPS) is an investment tool for retirement. Subscribers need to make a minimum contribution towards the NPS account annually; if they forget to make NPS contributions, they will have to pay a penalty and the minimum annual contribution to keep the account active. Typically, the account will get frozen if the subscriber fails to make the minimum yearly contribution.

NPS was opened to all in 2009 after being rolled out for the organized sector in 2004. It has since undergone several changes regarding its entry age, selection of fund managers, and annuity schemes, besides the recent introduction of the systematic lumpsum withdrawal (SLW) plan at maturity, making it more flexible to meet retirees’ financial goals.

What Happens If You Fail To Make Minimum Annual Contribution?

As per the Pension Regulatory and Development Authority (PFRDA), it is essential to contribute the minimum amount every year to keep the account active. If you forget to make NPS contributions then you will need to pay a Rs 100 penalty to unfreeze it, provided the subscriber pays the minimum contribution for the period. The subscriber can visit a PoP to make the required payment and reactivate the NPS account.

What Is The Minimum Investment Amount And Frequency?

The Tier I NPS account can be opened with an initial investment of Rs 500. The account holder must contribute at least Rs 6,000 towards the NPS account annually. Failure to do so leads to the account being frozen. Individuals whose NPS contributions are deducted from their salary need not worry. However, for self-employed individuals who make voluntary contributions, regular payments are necessary to prevent account freezing. If the account is frozen, individuals can request their bank or central recordkeeping agencies (CRA) to unfreeze it.

What Precautions Can One Take To Prevent Account Freezing?

You get into this situation when you forget to make NPS contributions, To avoid this situation subscribers can set a payment frequency (monthly, quarterly, semi-annually, or annually) by instructing the bank to auto-debit from their accounts towards NPS contributions. It will ensure the payments are made on time and account remains active.

How Does NPS Work?

The NPS account can be opened through Points of Presence (PoP) like banks or online by visiting the eNPS or respective banks’ websites. Individuals aged 18 to 70 can invest in select assets like equity, corporate bonds, government securities, and alternative investment funds in for investments. They can opt for the ‘auto’ option, where the fund allocation is based on the subscriber’s age and the “life cycle” matrix. The ‘active’ option allows them to choose the fund manager and decide asset allocation within the stipulated limits (equity cannot exceed 75 percent of the total investment). At maturity, the subscriber can withdraw up to 60 percent of the funds in a lump sum or through the SLW route, and the rest must be invested in an annuity plan.