Planning for retirement is an essential part of financial wellness. Traditionally, many employees depended on superannuation funds for their retirement corpus. However, with the emergence of the National Pension System (NPS) offering greater flexibility and tax benefits, many individuals are considering transferring their superannuation fund to NPS. Let’s understand everything you need to know about this transfer process.
What is Superannuation Fund?
A Superannuation Fund is an employer-sponsored pension plan where the employer contributes a portion of the employee’s salary toward the employee’s future pension. Generally, the contribution is around 15% of the employee’s basic salary plus dearness allowance (DA). The employee can access these funds upon retirement. You can check here on How to calculate superannuation benefit? These funds are usually managed by trust funds or insurance companies like LIC.
What is NPS?
The National Pension System (NPS) is a government-backed, voluntary retirement savings scheme aimed at encouraging systematic savings. NPS allows individuals to contribute regularly in a low-cost, market-linked investment model. Upon retirement, 60% of the corpus can be withdrawn tax-free, and the remaining 40% is used to purchase an annuity plan to receive a regular pension.
Benefits of Transferring Superannuation Fund to NPS
While you can Withdraw Superannuation Fund in India, there are several benefits of transferring it to NPS too.
- Higher Tax-Free Withdrawal: In superannuation, only 1/3rd (approx. 33%) is tax-free upon retirement. In NPS, up to 60% can be withdrawn tax-free.
- Zero GST on Annuity Purchase: While buying an annuity under superannuation attracts 1.8% GST, no GST is levied for annuities under NPS.
- Better Returns: NPS, being a market-linked product, often delivers better returns compared to traditional superannuation funds. Check this article about 3 NPS Funds that delivered over 22% CAGR in the last 5 years.
- Flexibility: NPS allows partial withdrawal after 5 years, while superannuation funds are rigid and depend on trust policies.
- Portability: In case of a job switch, NPS accounts remain intact. Superannuation schemes may force mandatory withdrawal if the new employer doesn’t offer a similar plan.
Pre-requisites for Transferring Superannuation to NPS
- You must have an active NPS Tier I account.
- You should have a valid PRAN (Permanent Retirement Account Number).
- Coordination between your old employer/trust and the new employer/Point of Presence (POP) is required.
- Necessary documentation like transfer letters and fund release instructions must be ready.
Step-by-Step Process of Transferring Superannuation Fund to NPS
- Open an NPS Account: Open a Tier I NPS account through your employer, bank, or POP.
- Request Transfer: Apply to your current superannuation trust or fund manager requesting a transfer to NPS.
- Issuance of Cheque/Draft: The superannuation fund will issue a cheque/draft in the following manner:
- For Govt. employees: “PAO/CDDO Name<>Employee Name<>PRAN Number”
- For Private employees: “POP Collection Account-NPS Trust<>Subscriber Name<>PRAN Number”
- Obtain Transfer Letter: Along with the cheque/draft, get an official letter mentioning the transfer details.
- Submit Documents to POP/Employer: Submit the cheque/draft and transfer letter to your employer (if NPS is employer-based) or directly to your POP.
- Fund Uploading: Your employer/POP will upload the transferred funds to your NPS Tier I account with appropriate remarks.
How to Transfer LIC Superannuation Fund to NPS
If your superannuation fund is managed by LIC, here’s how you can proceed:
- Reach out to the LIC branch managing your superannuation.
- Submit an application requesting transfer to NPS.
- LIC will issue a cheque favoring the NPS Trust with your PRAN details.
- Collect the transfer letter from LIC.
- Submit both the cheque and letter to your employer or POP.
- Track the transfer until the funds are credited to your NPS Tier I account.
How to Transfer Superannuation Fund to HDFC NPS?
- HDFC Pension provides end to end support to subscribers as well as corporates willing to launch NPS for their employees and also with migration of the Superannuation funds to NPS.
- If you are a retail subscriber willing to transfer your Superannuation corpus to NPS or if you are a corporate nodal officer or from the payroll team, write to npscorpqueries@hdfcpension.com to know more.
Negative Factors of Shifting to NPS
While NPS offers several benefits, it’s important to consider a few limitations:
- Market Risk: Returns in NPS are market-linked and are not guaranteed.
- Mandatory Annuity Purchase: Even after maturity, 40% of the corpus must be used to buy an annuity, which might offer lower returns.
- Lock-in Period: Premature exit requires the account to be active for at least 10 years.
- Limited Fund Choices: Compared to other investment options, NPS offers limited fund managers and asset allocation flexibility.
- Contribution Limits: The 10% contribution limit (for employees) may be lower than what some superannuation schemes offer.
Conclusion
Transferring your superannuation fund to NPS can be a smart move if you are looking for better tax benefits, higher returns, and flexibility in managing your retirement corpus. However, since NPS comes with market risks and mandatory annuity conditions, it is crucial to assess your financial goals and risk appetite before making the decision. If you are ready to embrace a market-linked retirement plan with potential for greater growth, shifting to NPS could be an excellent choice.
FAQs on Transferring Superannuation Fund to NPS
- What is a Superannuation Fund?
A Superannuation Fund is an employer-sponsored pension scheme where a portion of your salary is set aside for retirement, usually managed by a trust or insurance company like LIC. - What is the National Pension System (NPS)?
NPS is a voluntary, government-backed retirement savings scheme that allows systematic investments in market-linked assets with partial tax-free withdrawal benefits at retirement. - Can I transfer my superannuation fund to NPS?
Yes, eligible individuals with an active NPS Tier I account can transfer their superannuation fund to NPS. - What are the benefits of transferring my superannuation fund to NPS?
You get higher tax-free withdrawal, better returns, flexibility, portability, and zero GST on annuity purchase under NPS. - Is there any tax benefit in NPS compared to Superannuation?
Yes, in NPS, up to 60% of the corpus can be withdrawn tax-free versus only 1/3rd in superannuation. - Do I need an active NPS account before transferring my superannuation fund?
Yes, you must have an active Tier I NPS account and a valid PRAN number before initiating the transfer. - What documents are needed for the transfer?
You need a cheque/draft favouring NPS Trust and an official transfer letter from the superannuation fund or LIC. - Can I transfer LIC-managed superannuation funds to NPS?
Yes, you can. You need to apply to LIC, get the cheque and transfer letter, and submit them to your POP or employer. - What are the risks of transferring superannuation to NPS?
Being market-linked, NPS carries investment risks, and returns are not guaranteed. - Is GST applicable when transferring from Superannuation to NPS?
No, there is no GST levied on annuity purchase under NPS. - How is the transferred superannuation amount treated in NPS?
It is credited as a non-contributory deposit and separately identifiable in your NPS account. - What if my employer does not offer NPS facility?
You can still maintain and operate an individual NPS account independently through a registered Point of Presence (POP). - Can I partially withdraw from NPS after transferring my superannuation fund?
Yes, partial withdrawals are allowed after maintaining the account for at least 5 years for specific purposes like illness, education, or home purchase. - Who should issue the transfer cheque for private sector employees?
For private employees, the cheque should be drawn in favor of “POP Collection Account-NPS Trust” along with the subscriber’s name and PRAN number. - How long does it take for the superannuation transfer to reflect in my NPS account?
Typically, it may take a few weeks depending on how quickly the employer, LIC, or POP processes the paperwork and uploads the funds. - Can I continue to contribute to NPS after transferring my superannuation fund?
Yes, you can continue regular contributions to your NPS Tier I account even after transferring your superannuation amount. - What happens if I switch jobs after transferring my superannuation to NPS?
Your NPS account is portable and remains with you irrespective of job changes, unlike traditional superannuation schemes. - Is the transferred superannuation fund eligible for tax deductions under 80CCD(1) or 80CCD(2)?
No, the transferred amount itself is not eligible for fresh tax deductions under 80CCD sections. Only your new contributions qualify. - Can I opt for different fund managers after transferring my superannuation to NPS?
Yes, NPS allows you to choose and even change fund managers and asset allocation options within certain guidelines. - Is it compulsory to buy an annuity with part of my NPS corpus after retirement?
Yes, at least 40% of your final NPS corpus must be utilized to purchase an annuity to ensure a regular pension post-retirement. - Is NPS better than EPS (Employees’ Pension Scheme)?
NPS generally offers better returns as it is market-linked and provides higher flexibility compared to EPS, which offers fixed pension amounts based on a formula but with limited growth potential. - Can I have both NPS and Superannuation?
Yes, you can have both schemes simultaneously. You can contribute to your employer’s superannuation fund while also maintaining an individual or employer-linked NPS account. - How can I withdraw my LIC Superannuation?
To withdraw your LIC Superannuation, you need to apply to the LIC branch handling your fund, complete necessary forms, provide identity documents, and choose between options like lump sum withdrawal or purchasing an annuity plan as per the scheme’s rules.
Have you recently transferred your superannuation fund to NPS or planning to do so? Share your experience or queries in the comments below!
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Dear Sir, Thqs for the writeup. Can you pl inform us how much amount of pension we will get after the expiry of the NPS Product feels after the age of 60 or 65, by way of an example.
Let’s assume the following:
Age joined NPS: 30
Retirement age: 60
Investment duration: 30 years
Monthly contribution: ₹5,000
Expected annual return: 10%
Annuity purchase: 40% of the total corpus (mandatory)
Lumpsum withdrawal: 60% (tax-free)
60% lumpsum withdrawal = ₹67.8 lakhs (tax-free)
40% for annuity = ₹45.2 lakhs (must be used to buy annuity)
Assuming annuity rate = 6% per year (standard rate offered by LIC, SBI Life, etc.)
Yearly pension = ₹45.2 lakh × 6% = ₹2.71 lakhs
Monthly pension = ₹22,600 approx.
Annuity rates can range between 5.5% to 7.5%, depending on the scheme and insurer.
Thank you for your immediate response Sir.