NPS New Rules: The Pension Fund Regulatory and Development Authority (PFRDA) has made significant changes to the rules governing the National Pension System (NPS). Under the NPS Exit and Withdrawal Amendment Regulations 2025, issued on December 16, the scheme has become more flexible for private sector employees and general citizens. The new rules have eliminated the 5-year lock-in period for non-government investors. In addition, the limit for lump-sum withdrawals has been increased, and the age limit for continuing investments for a longer period has also been extended.
Major Relief with the Elimination of Lock-in Period
Until now, the biggest problem for those investing in NPS has been the long lock-in period. Previously, private sector employees and general citizens were required to maintain their investment for at least 5 years after opening the account. During this period, they could not exit the scheme. The new rules have removed this condition for non-government subscribers. However, this rule will still apply to government employees. This change will provide relief to those who were hesitant to invest in NPS due to the fear of their money being locked in for a long time.
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More Cash at Retirement
Significant changes have also been made to the withdrawal rules upon exiting the NPS. Previously, at the time of retirement or exit, it was mandatory to invest at least 40 percent of the total accumulated fund in an annuity, and only 60 percent could be withdrawn as a lump sum. According to the new rules, if an investor’s total corpus is more than Rs. 12 lakh, they can now withdraw 80 percent of the amount in a lump sum. Only 20 percent of the amount will need to be used to purchase a pension plan. This will provide people with more cash at the time of retirement, which they can use according to their needs.
Easier Rules for Small Investors
The PFRDA has created separate rules keeping in mind small and medium-sized investors. If a subscriber’s total fund is Rs. 8 lakh or less, they will not be required to purchase an annuity, and the entire amount can be withdrawn in a lump sum. Those with a corpus of more than ₹8 lakh but up to ₹12 lakh can withdraw a maximum of ₹6 lakh as a lump sum. The remaining amount must be invested in an annuity plan for a minimum of 6 years.
Facility to continue investment until age 85
Under the new rules, investors can now keep their money in NPS until the age of 85. Earlier, this limit was only 70 or 75 years. The advantage of this is that if a person does not need the money at the age of 60, they can benefit from compounding on their investment for a longer period.
Strict rules on premature withdrawal
If an investor exits the NPS before the stipulated age or period, the rules will be strict. In such a situation, at least 80% of the total fund will have to be invested in an annuity, and only 20% can be withdrawn in cash. However, if the total accumulated amount is less than ₹5 lakh, the entire amount can be withdrawn at once, even prematurely.
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Protection for nominees and family
The new rules also clarify claim settlements. If the subscriber dies before withdrawing the money or purchasing an annuity, the entire accumulated amount will be given to the nominee or legal heir. There will be no condition for purchasing an annuity in this case. If a person goes missing and is legally declared dead, the nominee will immediately receive 20 percent of the amount. The remaining amount will be given after the completion of the legal process.
Full withdrawal upon relinquishing Indian citizenship
The rules have also been simplified for those who settle abroad and relinquish their Indian citizenship. In such a situation, they can close their NPS account and withdraw the entire accumulated amount as a lump sum.
Rules remain the same for government employees
These changes will not affect government employees. The 5-year lock-in period will still be mandatory for them. At the time of retirement, if their total fund is more than ₹5 lakh, 40% of the amount will go into an annuity, and 60 percent will be received in cash. The entire amount can only be withdrawn if the fund is less than ₹5 lakh. What is NPS?
The National Pension System (NPS) was launched in 2004 for government employees and was opened to all citizens in 2009. It is a long-term retirement savings plan that allows investors to build a substantial corpus and receive a pension by making regular investments during their working life. NPS offers investment options in instruments such as equities, corporate bonds, and government securities. It is a tax-advantaged scheme, providing tax benefits on investments, returns, and the maturity amount. NPS is considered a safe and reliable option for those planning for retirement.