Superannuation to NPS Transfer: All You Need To Know About

Transfer Provision

Pension Fund Regulatory and Development Authority (PFRDA), on 6th March 2017, released a circular regarding fund transfer from the Superannuation fund to the National Pension Scheme (NPS).

If a subscriber wants to get his recognised provident fund/superannuation fund transferred to NPS, then they have to follow the below-mentioned process:   

1. First of all, the subscriber has to open an NPS account either through the employer or through the bank or authorised entity known as a Point of Presence (POP). 
2. Now, to move your funds from superannuation to NPS: 

• Ask your old Provident Fund/Superannuation fund to transfer money to your NPS account.
• They will issue a cheque or draft in your name with your PRAN number.
• For government employees, ask them to send a letter to your current employer saying they’re transferring money to your NPS account.
• For corporate sector employees, get a letter from your old fund stating they’re transferring the money to your NPS account.
• Give this letter and cheque/draft to your current employer/POP (if applicable), and they’ll upload the money to your NPS account. 

Tax benefits

• Tax benefit at the time of investment: 

In the case of superannuation, the individual can invest 15% of salary (Basic +DA) or ₹1.5 lakh, whichever is lower, but in the case of NPS, the investment can be up to 10% of (Basic +DA) with an extra upper limit of ₹7.5 lakh. 

• Tax treatment of exit at the age of retirement: 

In the case of superannuation, individuals can only withdraw 1/3rd of the invested amount tax-free, or if the remaining amount is transferred to an annuity is tax-free or otherwise taxable. Whereas in the case of NPS, 60% of the amount invested can be withdrawn tax-free and the rest can be invested in annuities. 

• Tax treatment on exit before attaining the age of retirement: 

In the case of superannuation, no tax-free withdrawals are allowed, whereas, in the case of NPS, individuals can withdraw up to 20% of the invested amount tax-free and invest the balance into an annuity to start a pension. 

Transfer of EPF or Superannuation funds to NPS Guidelines

• Transfer of EPF to NPS by a Govt employee: 

In the case of government employees, EPF/superannuation funds may issue a cheque in the name of Nodal Office Name (PAO or CDDO Name)<>Employee Name<> PRAN (12 Digit No.). The employee should request the EPF or Superannuation fund to issue a letter to the present employer stating the amount that is to be transferred to the NPS Tier I account. The Present employer/POP, i.e. nodal office, shall while uploading the fund, mention that the same is transferred from a superannuation fund. 

• Transfer of EPF to NPS by a Private-sector employee

In the case of a private sector employee, EPF/superannuation fund may issue a cheque in the name of POP (Name of POP) Collection Account-NPS Trust <> Subscriber Name<> PRAN (12 Digit). The employee should request the EPF/Superannuation Fund to issue a letter to his POP or employer mentioning the amount that is being transferred from EPF and to be credited to the NPS Tier I account. The POP will get the amount collected and the same will be uploaded by the POP to the NPS account. 

Advantages and Disadvantages of Transferring Superannuation to NPS

Advantages of transferring the fund from the Superannuation Fund: 

• In superannuation funds, the tax-free withdrawal amount is 33%, whereas in the case of NPS, it is 60%.
• In the case of buying annuities in superannuation funds, the amount of GST is 1.8%, whereas it is zero in the case of NPS.
• NPS offer a higher return than superannuation. (Returns in NPS are subject to market risk)
• Subscribers can withdraw from NPS after 5 years of opening the account, whereas exit in superannuation is allowed as per the Trust Deep Policy. 
• If you switch jobs and a new employer does not offer superannuation you have to mandatorily exit from the scheme, whereas in case an NPS subscriber can open an NPS account by themselves. 

Disadvantages of transferring the fund from the Superannuation Fund: 

• Superannuation plans give unique benefits over conventional plans. Unlike investment-based plans like NPS, the benefits are secured once the employee becomes eligible, as they are not impacted by market fluctuation. 

Frequently Asked Questions (FAQs)