The current NPS model leaves many pensioners uncertain about the actual pension they will receive upon retirement. The new plans are being introduced to address this uncertainty. The government’s vision is that pensions should not be merely a means of savings or investment, but rather serve as a permanent security net after retirement.
Introducing these three attractive options is a concrete step in this direction, ensuring NPS members can be confident of regular, inflation-protected income after retirement. All stakeholders can submit their opinions on this proposal online until October 31, 2025, after which a final decision will be made. These three new models will transform your retirement life.
1. Hybrid Plan of Systematic Withdrawal and Regular Pension
This option is a unique blend of a Systematic Withdrawal Plan (SWP) and a traditional pension plan (annuity). It is suitable for investors who wish to withdraw funds as needed. This scheme requires a minimum contribution period of 20 years. 50% of the contribution will be invested in equities until the age of 45, after which it will be gradually reduced.
Upon retirement, 4.5% of the total pension fund will begin to be paid as a monthly pension through a Systematic Withdrawal Plan, with this amount increasing by 0.25% every year. When you turn 70, the remaining corpus will be used to purchase an annuity (pension plan), providing you with a fixed income for the next 20 years. This pension can also be extended to your spouse or family.
2. Target-Based and Inflation-Resilient Plan
This second option is for NPS members who want a fixed monthly pension that increases with inflation. If a person wants a monthly pension of ₹40,000 after retirement, this plan will balance all factors such as investment, interest rate, and risk to achieve this target amount. Under this plan, a fixed pension will be earned by investing in equities and high-rated bonds.
To ensure an inflation-adjusted pension, it will be possible to invest up to 25% in equities, thereby achieving higher returns. This plan also mandates a 20-year contribution period, and the pension withdrawal period is set at 25 years. This means that if a person retires at the age of 60, they will continue to receive a pension until they reach the age of 85. If the pensioner passes away before the 25-year years is over, their family will receive the remaining pension amount.
3. Pension Credits-Based Half-Assured Pension Plan
This plan will feature a new system called “Pension Credits.” During the pension period, monthly payments will be made based on the number of pension credits accumulated. Under this plan, credits will be purchased for the monthly pension, with a maturity period of 1, 3, or 5 years. NPS members can choose their retirement year, pension goal, and investment plan. This way, members will be able to choose this option based on their risk appetite.
Other major proposed changes you need to know
In addition to these three significant options, the PFRDA has proposed several other important reforms. First, the maximum age for purchasing an annuity (pension plan) will be increased from 65 to 70 years. This change will provide retiring individuals with unprecedented flexibility to keep their capital invested for a longer period. Second, currently, withdrawals from NPS are only possible at age 60. The new proposal could allow partial withdrawals after completing 15 years of contributions, allowing investors to withdraw some money if needed.
Third, private sector pensioners may now have the freedom to choose to invest up to 100 percent of their account balance in the stock market. Fourth, the limit on lump-sum withdrawals upon retirement is currently 60 percent. This amount is being considered to be increased to 80 percent, while only 20 percent of the amount will have to be used to purchase a pension plan (annuity).