Recently, the Pension Fund Regulatory and Development Authority (PFRDA) made major changes to the rules of the National Pension System through “The PFRDA (Exits and Withdrawals under the National Pension System) Amendment Regulations 2025,” which were published on the 16th December 2021.

The rule that required private sector subscribers to keep their subordinate accounts locked for five years has been eliminated. The amount allowed to be withdrawn as a lump-sum at the end of an individual’s subscription period has been increased drastically; as a result, the amount allowed to remain in an NPS account for future contributions has also risen substantially. The most difficult part of investing in NPS prior to this rule change was the fact that you could not withdraw your investments until you completed five consecutive years from the date you opened your account.

However, the 5-year lock-in rule will still remain in effect for government employees. This change has brought significant relief to those who hesitated to invest in NPS due to concerns about their money being locked in for a long period.

The biggest change in the NPS exit rules concerns the withdrawal ratio. In technical terms, this is called the exit ratio. Previously, when a subscriber retired or exited the scheme, at least 40 percent of their total accumulated fund (corpus) had to be invested in an annuity. An annuity is a system through which a monthly pension is received. According to that rule, a subscriber could withdraw a maximum of 60 percent of the money as a lump sum.

According to the new rules, if a subscriber’s total corpus is more than ₹12 lakh, the 80:20 rule will now apply. This means that 80% of the total fund can be withdrawn as a lump sum, and only 20% needs to be used to purchase an annuity (pension plan). This will leave the retired individual with more cash in hand. They can use this money for various purposes—for example, building a house, their child’s marriage, repaying loans, or other investments.

The PFRDA has further simplified the rules for small and medium-income investors so that they are not forced to buy a pension plan. Two separate slabs have been created for this purpose. If the total accumulated fund (corpus) is ₹8 lakh or less, there will be no obligation to buy an annuity. That is, the entire amount can be withdrawn as a lump sum.

Subscribers whose fund is more than ₹8 lakh but within ₹12 lakh can withdraw a maximum of ₹6 lakh as a lump sum. The remaining amount must be invested in an annuity scheme with a minimum tenure of 6 years.

Have the rules changed for government employees as well?

No, the rules have not changed for government employees. The rules mentioned above are primarily applicable to the private sector (private employees and general citizens). Therefore, this change will not affect the NPS investments of government employees.

The 5-year lock-in period will remain mandatory for government employees. If you exit after completing 60 years of age, and the fund is more than 5 lakh rupees, then 40% of the amount will go into an annuity and 60% will be received as a lump sum. Government employees can withdraw 100% of the amount only if their total fund is less than 5 lakh rupees.