NPS: The Pension Fund Regulatory and Development Authority (PFRDA) has made significant changes to the National Pension System (NPS) rules. The PFRDA (Exits and Withdrawals under the National Pension System) Amendment Regulations 2025, notified on December 16, make the NPS significantly more flexible for the private sector and general public. The five-year lock-in period for non-government subscribers has been removed. The lump-sum withdrawal amount has been increased, and the investment retention limit has also been raised.
Until now, the biggest obstacle for NPS investors was the lock-in period. Under the old rules, a five-year lock-in period was mandatory for non-government sector subscribers. This meant they could not exit the account for five years after opening. The five-year lock-in period remains in effect for government employees. This change is a significant relief for those who were hesitant to invest in NPS due to fears of their money being locked up for a long period.
The most significant change in NPS exit rules is the withdrawal ratio. Technically, this is known as the exit ratio. Previously, when a subscriber retired or exited the scheme, they had to invest at least 40% of their corpus to purchase an annuity. Annuity is the amount that provides a monthly pension. Previously, subscribers could only withdraw 60% of their funds in a lump sum.
According to the revised rules, if a subscriber’s total corpus exceeds Rs 12 lakh, the 80:20 rule will now apply. 80% of the total fund can be withdrawn in one lump sum. Only 20% of the corpus will need to be used to purchase an annuity (pension plan). This will provide retirees with more cash in hand. They can use this money for home construction, children’s weddings, debt repayment, or other investments, instead of having a large portion locked up in a pension plan.
PFRDA has further simplified the rules for small and medium-sized investors so that they are not forced to purchase pension plans. Two separate slabs have been created for this purpose. If the total corpus is Rs 8 lakh or less, there is no obligation to purchase an annuity. The entire amount can be withdrawn in one lump sum. Subscribers with a corpus of more than Rs 8 lakh but up to Rs 12 lakh can withdraw a maximum of Rs 6 lakh in one lump sum. The remaining amount must be invested in an annuity scheme with a minimum tenure of 6 years.
PFRDA has also extended the investment period. Under the new rules, subscribers can now continue investing in NPS until the age of 85. Previously, in many cases, accounts were only allowed to remain active until the age of 70 or 75. This change means that if a person no longer needs the money at age 60, they can leave their money to continue to enjoy the benefits of compounding for another 25 years.
Rules for premature withdrawal have been clarified to ensure that it remains a retirement product. If a subscriber exits the scheme before maturity (age 60 or 15 years of membership), they must have invested at least 80% of their total corpus in the annuity. They will be able to withdraw only 20% of the corpus. If the total corpus is less than ₹5 lakh, the entire corpus can be withdrawn in a lump sum even upon premature withdrawal.
Keeping family security in mind, PFRDA has also clarified claim settlement procedures. If a subscriber dies before purchasing or withdrawing the annuity, the entire accumulated amount (100%) will be paid to the nominee or legal heir, without any annuity purchase requirements. If a subscriber goes missing and is legally presumed dead, the nominee will receive 20% of the amount as immediate relief. The remaining amount will be paid upon completion of legal procedures and in accordance with the provisions of the Indian Evidence Act, 2023.
What is NPS?
NPS was launched in January 2004 for government employees. In 2009, it was opened to all citizens. This scheme allows you to invest regularly during your working age, build a substantial corpus, and secure a pension. For those preparing for retirement, the National Pension System (NPS) is an investment vehicle that is not only safe but also offers tax benefits. NPS allows subscribers to invest in a variety of assets, including equities, corporate bonds, and government securities. It is an EEE category investment scheme, offering tax exemptions on the deposit amount, maturity proceeds, and interest earned on the deposit amount.