New Delhi. The Pension Fund Regulatory and Development Authority (PFRDA) has made major changes in the rules of the National Pension System (NPS). The PFRDA (Exits and Withdrawals under the National Pension System) Amendment Regulations 2025, notified on 16 December, have made NPS extremely flexible for the private sector and common citizens. The lock-in period of 5 years has been removed for non-government subscribers. The lump sum withdrawal amount has been increased and the limit for maintaining investment in NPS has also been increased.
Till now the biggest hurdle for those investing in NPS was the ‘lock-in period’. Under the old rules, a lock-in of 5 years was mandatory for non-government sector subscribers. That means you could not exit the account for 5 years after opening it. The 5-year lock-in will still be applicable for government employees. This change is a big relief for those who were hesitant in investing money in NPS due to the fear of getting the money stuck for a long period.
You will get more cash in hand
While exiting NPS (Exit Rules), the biggest change has been made in the ratio of withdrawal of money. In technical language it is called exit ratio. Earlier, when a subscriber retired or exited the scheme, he had to invest at least 40% of his total corpus in purchasing annuity. Annuity is the amount from which pension is received every month. The subscriber could withdraw only 60% of the money in lump sum.
According to the revised rules, if the total corpus of a subscriber is more than Rs 12 lakh then the 80:20 rule will now be applicable. You can withdraw 80% of the total fund in lump sum. Annuity (pension plan) will have to be purchased with only 20% of the amount. This will bring more cash into the hands of retirees. They will be able to use this money to build a house, marry their children, repay loans or make any other investment, instead of having a large portion of their money locked in a pension plan.
PFRDA has further simplified the rules for small and middle class investors so that they are not forced to buy pension plans. Two separate slabs have been made for this. If the total corpus is Rs 8 lakh or less, there will be no obligation to buy annuity. You can withdraw the entire amount in lump sum. Subscribers whose funds are more than Rs 8 lakh but up to Rs 12 lakh can withdraw a maximum of Rs 6 lakh in lump sum. The remaining amount will have to be invested in an annuity scheme with a tenure of at least 6 years.
Investment opportunity till the age of 85 years
PFRDA has also extended the time limit for remaining in investment. According to the new rules, subscribers can now continue their investment in NPS till the age of 85 years. Earlier in many cases, the account was allowed to be active only till 70 or 75 years. This change means that if a person does not need the money at the age of 60, he can leave his money for another 25 years to take advantage of compounding.
Strict rules for premature withdrawal
The rules on premature closure of the scheme have been clarified to ensure that it remains a retirement product. If a subscriber exits the scheme before maturity (60 years or 15 years of subscription), he will have to invest at least 80% of his total fund in annuity. He will be able to withdraw only 20% of the amount in cash. If the total fund is less than Rs 5 lakh then the entire amount can be withdrawn in lump sum even on premature withdrawal.
Keeping in mind the safety of the family, PFRDA has also clarified the claim settlement. If the subscriber dies before purchasing the annuity or withdrawing the money, the entire amount deposited (100%) will be given to the nominee or legal heir. There will be no condition for purchasing annuity in this. If a subscriber goes missing and is considered dead by law, 20% of the amount will be given to the nominee as immediate relief. The remaining amount will be paid upon completion of the provisions of the Indian Evidence Act, 2023 and legal processes.
Full refund on renouncing citizenship
Many Indians are settling in other countries. In view of this, according to the new rules, if a subscriber gives up his Indian citizenship, he can close his NPS account. In such a situation, he will be allowed to withdraw the entire deposited amount in lump sum.
Have the rules changed for government employees also?
No, the rules have not changed for government employees. The rules mentioned above are mainly for the non-government sector (private and common citizens). This means that these changes will not affect the government employees who have invested money in NPS. Lock-in of 5 years will be mandatory for them. On exit after the age of 60 years, if the fund is more than Rs 5 lakh then 40% of the amount will go into annuity and 60% will be received in cash. Government employees can withdraw 100% money only when their total fund is less than Rs 5 lakh.
What is NPS?
NPS was started in January 2004 for government employees. In the year 2009 it was opened to all citizens. In this scheme, you can not only create a big fund by investing regular money during your working age but can also arrange for pension. For those preparing for retirement, National Pension System (NPS) is an investment instrument which is not only safe but also gives tax benefits. NPS offers subscribers the facility to invest in multiple assets such as equities, corporate bonds and government securities. This is an EEE category investment scheme in which tax exemption is available on the deposit amount, the amount received on maturity and the interest received on the deposit amount.
