NPS Rules Changed: Up to 80% Lump Sum Withdrawal Now Allowed
The Pension Fund Regulatory and Development Authority (PFRDA) has introduced significant changes to the National Pension System (NPS), aiming to make retirement planning more flexible and investor-friendly. Announced under the NPS Exit and Withdrawal Amendment Regulations 2025 on December 16, these reforms bring major relief for private sector employees and individual subscribers, while keeping government employee rules largely unchanged.
No More 5-Year Lock-In for Private Investors
One of the biggest hurdles for private NPS investors has been the mandatory 5-year lock-in period. Earlier, private sector employees and individual citizens could not exit their NPS accounts before completing five years, which discouraged some from investing. The new regulations remove this restriction for non-government subscribers, allowing them to access their funds sooner if needed. Government employees, however, will continue to follow the existing lock-in rules. This move is expected to make NPS more appealing to a larger audience who were hesitant due to long-term fund blockage.
Higher Lump-Sum Withdrawal at Retirement
The withdrawal rules at retirement have also been made more flexible. Previously, investors were required to allocate at least 40% of their corpus to an annuity, with only 60% available for lump-sum withdrawal. Under the new guidelines, subscribers with a total corpus exceeding ₹12 lakh can now withdraw up to 80% as a lump sum, leaving only 20% for purchasing a pension plan. This gives retirees more liquidity to manage their post-retirement needs according to personal priorities.
Special Relief for Small and Mid-Sized Investors
PFRDA has also introduced investor-friendly rules for those with smaller retirement savings. Subscribers with a corpus of ₹8 lakh or less can withdraw the entire amount in a lump sum, without being required to buy an annuity. For investors with a total fund between ₹8 lakh and ₹12 lakh, a maximum of ₹6 lakh can be withdrawn in cash, while the remaining amount must be used to purchase an annuity for at least six years. This tiered system ensures flexibility while maintaining long-term retirement security.
Investment Life Extended Until Age 85
Another significant reform allows subscribers to keep their money in NPS until the age of 85, compared to the previous limit of 70–75 years. This gives investors the option to stay invested longer, benefiting from extended compounding if they do not need immediate withdrawals at the standard retirement age of 60.
Stricter Rules for Early Exit
While the reforms ease withdrawals at retirement, premature exits remain tightly regulated. If a subscriber withdraws funds before the eligible age, 80% of the total corpus must be used to purchase an annuity, and only 20% can be withdrawn as cash. An exception applies for small accounts: if the total corpus is below ₹5 lakh, subscribers can withdraw the entire amount immediately, even before retirement age.
Clear Protection for Nominees and Families
The updated regulations also make claim settlements simpler and more transparent. In the unfortunate event of a subscriber’s death before withdrawal or annuity purchase, the entire accumulated amount will be paid directly to the nominee or legal heir without any annuity obligations. If a subscriber is declared missing and legally presumed dead, 20% of the amount is immediately released, while the remaining funds are transferred after completing the legal process. This ensures financial security for families and legal clarity.
For subscribers moving abroad and renouncing Indian citizenship, the process has been simplified. They can now close their NPS accounts and withdraw the entire corpus as a lump sum, making it easier for global migrants to manage their retirement savings.
No Change for Government Employees
It’s important to note that these changes do not apply to government employees. They will continue to face the 5-year lock-in period. At retirement, if their total corpus exceeds ₹5 lakh, 40% must be invested in an annuity, and 60% can be withdrawn as cash. Only if the fund is less than ₹5 lakh can the entire amount be withdrawn.
What Is NPS?
The National Pension System was launched in 2004 for government employees and opened to all citizens in 2009. It is a long-term retirement savings plan designed to help individuals build a substantial corpus for post-retirement life. Subscribers can invest in equities, corporate bonds, and government securities, while also enjoying tax benefits on contributions, returns, and maturity proceeds. NPS has long been considered a safe and reliable retirement planning tool. With these latest reforms, it has become more flexible, accessible, and attractive for private investors planning a secure and comfortable retirement.
No More 5-Year Lock-In for Private Investors
One of the biggest hurdles for private NPS investors has been the mandatory 5-year lock-in period. Earlier, private sector employees and individual citizens could not exit their NPS accounts before completing five years, which discouraged some from investing. The new regulations remove this restriction for non-government subscribers, allowing them to access their funds sooner if needed. Government employees, however, will continue to follow the existing lock-in rules. This move is expected to make NPS more appealing to a larger audience who were hesitant due to long-term fund blockage.Higher Lump-Sum Withdrawal at Retirement
The withdrawal rules at retirement have also been made more flexible. Previously, investors were required to allocate at least 40% of their corpus to an annuity, with only 60% available for lump-sum withdrawal. Under the new guidelines, subscribers with a total corpus exceeding ₹12 lakh can now withdraw up to 80% as a lump sum, leaving only 20% for purchasing a pension plan. This gives retirees more liquidity to manage their post-retirement needs according to personal priorities.Special Relief for Small and Mid-Sized Investors
PFRDA has also introduced investor-friendly rules for those with smaller retirement savings. Subscribers with a corpus of ₹8 lakh or less can withdraw the entire amount in a lump sum, without being required to buy an annuity. For investors with a total fund between ₹8 lakh and ₹12 lakh, a maximum of ₹6 lakh can be withdrawn in cash, while the remaining amount must be used to purchase an annuity for at least six years. This tiered system ensures flexibility while maintaining long-term retirement security. Investment Life Extended Until Age 85
Another significant reform allows subscribers to keep their money in NPS until the age of 85, compared to the previous limit of 70–75 years. This gives investors the option to stay invested longer, benefiting from extended compounding if they do not need immediate withdrawals at the standard retirement age of 60.Stricter Rules for Early Exit
While the reforms ease withdrawals at retirement, premature exits remain tightly regulated. If a subscriber withdraws funds before the eligible age, 80% of the total corpus must be used to purchase an annuity, and only 20% can be withdrawn as cash. An exception applies for small accounts: if the total corpus is below ₹5 lakh, subscribers can withdraw the entire amount immediately, even before retirement age. Clear Protection for Nominees and Families
The updated regulations also make claim settlements simpler and more transparent. In the unfortunate event of a subscriber’s death before withdrawal or annuity purchase, the entire accumulated amount will be paid directly to the nominee or legal heir without any annuity obligations. If a subscriber is declared missing and legally presumed dead, 20% of the amount is immediately released, while the remaining funds are transferred after completing the legal process. This ensures financial security for families and legal clarity. Full Withdrawal for Those Relinquishing Indian Citizenship
For subscribers moving abroad and renouncing Indian citizenship, the process has been simplified. They can now close their NPS accounts and withdraw the entire corpus as a lump sum, making it easier for global migrants to manage their retirement savings.
No Change for Government Employees
It’s important to note that these changes do not apply to government employees. They will continue to face the 5-year lock-in period. At retirement, if their total corpus exceeds ₹5 lakh, 40% must be invested in an annuity, and 60% can be withdrawn as cash. Only if the fund is less than ₹5 lakh can the entire amount be withdrawn. What Is NPS?
The National Pension System was launched in 2004 for government employees and opened to all citizens in 2009. It is a long-term retirement savings plan designed to help individuals build a substantial corpus for post-retirement life. Subscribers can invest in equities, corporate bonds, and government securities, while also enjoying tax benefits on contributions, returns, and maturity proceeds. NPS has long been considered a safe and reliable retirement planning tool. With these latest reforms, it has become more flexible, accessible, and attractive for private investors planning a secure and comfortable retirement.Next Story