Moving abroad does not necessarily mean that your National Pension System (NPS) account has to be closed. In case Indians migrate overseas and become Non-Resident Indians (NRIs), the NPS framework allows for continuing participation in the retirement savings scheme, subject to applicable rules.
The Pension Fund Regulatory and Development Authority (PFRDA) allows NRIs and Overseas Citizens of India (OCIs) to hold an NPS Tier I account. However, there is an important restriction: NRIs and OCIs cannot activate an NPS Tier II account. As of 2015, subscribers in these categories with Tier I accounts are not allowed to activate Tier II.
What happens to NPS Once You Become an NRI?
An NPS account does not end simply because a subscriber moves overseas and changes their residential status.
NRIs can continue their NPS investment through the permitted banking channels. Contributions can be made using eligible NRE or NRO bank accounts, so subscribers living abroad can continue building their retirement corpus in India.
This is particularly relevant for Indian professionals and families who move overseas for employment, business, or other reasons but still want to maintain their retirement investments in India.
The NPS framework therefore provides continuity for Tier I subscribers, although the rules applicable to NRIs and OCIs differ from those applicable to resident Indian subscribers.
Can NRIs open an NPS Tier I account?
Yes. Eligible NRIs can participate in NPS Tier I, subject to eligibility and KYC requirements.
OCIs can also subscribe to NPS Tier I. PFRDA's rules have certain conditions on overseas subscribers, including compliance with the required KYC framework.
Recent changes have also made the onboarding and KYC process more convenient for NRIs and OCIs. PFRDA has made digital onboarding and KYC-related processes available from outside India, which allows eligible overseas subscribers to not be physically present in the country for these procedures.
Can NRIs or OCIs activate Tier II?
This is where the major restriction comes in.
NRIs and OCIs cannot activate an NPS Tier II account. PFRDA explicitly states that subscribers in these categories who hold Tier I accounts are not permitted to activate Tier II.
Tier II is generally an investment account linked to NPS that offers more withdrawal flexibility than Tier I. However, that flexibility is not available to NRI and OCI subscribers through a Tier II NPS account.
Thus, an overseas subscriber should not assume that moving abroad while holding NPS will provide access to the same Tier II facilities available to eligible resident subscribers.
NRE and NRO accounts Matter
For NRIs continuing their NPS investments, the banking route used for contributions is important. Contributions can be made through permitted NRE or NRO accounts under the applicable NPS rules.
This means that becoming an NRI doesn’t mean that the subscriber has to quit retirement contributions. Rather, the subscriber must ensure that their NPS and banking information remain compliant with the regulatory requirements.
What about Existing NPS Investments?
Existing Tier I investments can continue subject to NPS rules. The retirement corpus stays invested according to the subscriber's chosen pension fund and investment option.
But NPS is a long-term retirement product, and withdrawals and exit are governed by particular rules. Overseas subscribers should therefore distinguish between continuing their NPS investment and having unrestricted access to the accumulated corpus.
Key Points for NRIs and OCIs
For someone moving from India to another country, the key NPS rules can be summarised as follows:
- Moving abroad does not automatically mean that an NPS Tier I account is closed.
- Eligible NRIs can continue to participate in NPS Tier I.
- OCIs can also subscribe to NPS Tier I.
- Contributions can be made through authorized NRE or NRO banking arrangements.
- NRIs and OCIs cannot activate an NPS Tier II account.
- KYC and onboarding are simplified through digital processes for eligible overseas subscribers.
When NRIs are in the process of planning their long-term retirement strategy, the restrictions that are in place are important before any additional contributions, changes to the account, or withdrawals are made in this regard. Since tax treatment, foreign exchange rules, and taxation in the country of residence of the subscriber also affect their overall outcome, overseas subscribers should be aware of the applicable rules in India and their country of residence before making any major financial decisions.
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