The Pension Fund Regulatory and Development Authority (PFRDA) has made the “Penny Drop Verification” process mandatory for exiting or withdrawing funds from the National Pension System (NPS), as well as amending the subscriber’s bank account details. The process will prevent delays in crediting funds to a subscriber’s bank account due to various issues.

PFRDA’s October 25 circular highlighted several issues for the delay, like invalid account number or account type, wrong IFSC code, mismatch in name, dormant or inactive account, account transferred or closed, credit freeze, the account does not exist, etc. To solve these problems, it has proposed the penny-drop mechanism for instant account verification.  

What Is Penny Drop Verification? 

The penny drop process enables instant account verification, ensuring the money reaches the intended account. It involves transferring a small amount of money or a penny to the subscriber’s bank account as a test before crediting the entire amount. This process validates the subscriber’s permanent retirement account number (PRAN) and name, enabling the bank to transfer the funds to the correct beneficiary. Subscribers receive a PRAN number, unique for every subscriber when registering for NPS.  

How Will Penny Drop Work In The NPS? 

The central record-keeping agencies (CRAs) will check whether the subscriber’s name matches their PRAN number, the documents submitted during the NPS subscription and whether the bank account is active. The penny drop process will verify the details before transferring the funds. 

If, for any reason, the transaction is unsuccessful or the amount does not reach the subscriber’s account, the funds will remain in the custody of the trustee bank until the details are modified. 

The circular states, “If the bank account and other details are not correct, the alternate account number or additional supporting documents are to be submitted for updating the records. In case (the) penny drop fails at the time of processing, the nodal officer /POP/subscribers will be informed to correct the bank account number and resubmit the application so that their withdrawal request can be processed in a time-bound manner.” 

It adds, “No request for exit/withdrawal, and or for modifying the subscriber’s bank account details shall be allowed in case of failure of penny drop verification by the CRA.”

How Are The Details Modified? 

For failed penny transactions, CRAs will inform the nodal office to modify the subscriber’s bank account details in the CRA system, using the S2 form and following proper process and due diligence. Besides informing the nodal officer or the intermediary, the CRA will communicate with the subscriber through email or mobile number, inform them about the penny drop failure, and advise them to contact the nodal officer or the point of presence (PoP). After the details are modified, the penny drop verification process will be repeated to confirm the successful transaction.  

As part of the process, Re 1 will be credited to the beneficiary account. After the details are verified, the CRAs will recover the amount from the beneficiary’s account for returning it to the service provider. This exercise reduces transaction failures when exiting from the NPS or making withdrawals. The quick verification facility is available on the NPS portal, NPS Lite, and Atal Pension Yojana (APY). 

PFRDA has advised the CRAs to incorporate the penny drop functionality in their systems within a month as the due diligence becomes effective from the date of issue of the circular.