NPS: Are You Aware Of The 'Penny Drop' System?

The National Pension System (NPS) is a voluntary long-term retirement investment scheme by the government of India. This retirement scheme allows you to invest your money in various market-linked instruments like equities and debts. Post-retirement, you can choose to withdraw a certain percentage of your investment from your NPS account, while the remaining amount is paid to you as a monthly pension post-retirement.

The ‘penny drop’ system in NPS was introduced in the year 2021 by the PFRDA. In this article, we will understand how this system works.

The Pension Fund Regulatory and Development Authority (PFRDA), in order to protect the interest of the subscribers of the NPS, has set up an instant bank account verification process for the withdrawal of funds from the NPS account.

When NPS subscribers place a withdrawal or partial withdrawal request, they are asked to provide necessary details like their bank account number and IFSC code. Once the Central Record Keeping (CRA) system verifies and authorises their withdrawal request, the withdrawal amount is credited to their bank account.

However, the withdrawal amount may not get credited into the subscriber’s account in some cases due to certain account-related issues. These may include invalid or incorrect bank account number, incorrect IFSC code, mismatch in name or account type, etc. This is where the ‘penny drop’ system comes into play.

The penny drop system of bank account verification is adopted by the CRA to check the active status of the NPS subscriber’s bank account and match the name mentioned in the bank account with that mentioned in the subscriber’s Permanent Retirement Account Number (PRAN)

In the penny drop system, the CRA verifies the subscriber’s bank account by making a test transaction in the beneficiary’s account. Here, the NPS beneficiary’s account is credited with ₹1 to verify the account.

If the penny drop verification process is successful, i.e., if the ₹1 is successfully deposited into the NPS subscriber’s account, he/she will be allowed to complete the withdrawal process.

In case of any mismatch in the account details provided by the subscriber, the penny drop process will fail at the time of processing. In such a situation, the subscriber will be asked to provide the correct bank details and resubmit the NPS withdrawal application.

The NPS subscriber will be charged a small amount for the instant bank account verification process using the penny drop system:

• K Fin Technologies Pvt. Ltd. - ₹1.90+ taxes

• NSDL e-Governance Infrastructure Pvt. Ltd. - ₹2.40 + taxes

(Note: The above-mentioned charges include the ₹1 that is credited to the NPS beneficiary’s bank account as part of the penny drop process.)

The Pension Fund Regulatory and Development Authority has recently made certain changes in the NPS scheme to help its subscribers. These include the following:

• NPS subscribers are now allowed to withdraw their NPS investments completely if the accumulated balance in their NPS account is up to ₹5 Lakh.

• They are also allowed to make partial withdrawals from their NPS account through self-declaration. The subscribers are not required to provide any supporting documents to make partial withdrawals from their NPS accounts.

Suggested Read: Does The National Pension System Deserve More Attention Than It Gets?