In a major reform aimed at providing greater flexibility, the Pension Fund Regulatory and Development Authority (PFRDA) has significantly relaxed the withdrawal norms for non-government subscribers of the National Pension System (NPS). The amended rules now permit eligible members to access a larger portion of their savings as a lump sum upon retirement.
Key Changes in Annuity Purchase Mandate
The most impactful change is the reduction in the compulsory annuity purchase requirement. For non-government subscribers under the All Citizen Model and Corporate NPS, the mandatory annuity component has been slashed from 40 per cent to a minimum of 20 per cent of the accumulated pension wealth. This amendment was officially notified through the PFRDA (Exits and Withdrawals under the NPS) Regulations, 2025, on December 16.
This shift means that at the time of a normal exit at age 60, or after completing the minimum subscription period, subscribers can now withdraw up to 80 per cent of their retirement corpus immediately. The remaining portion must be used to purchase an annuity, which provides a regular pension income. This revision applies to exits between the ages of 60 and 85 as well.
New Withdrawal Rules Based on Corpus Size
The amended regulations introduce a tiered structure for withdrawals, directly linking the options to the total size of the subscriber's pension wealth.
- Corpus up to Rs 8 lakh: Subscribers have the option to withdraw the entire amount as a lump sum. Purchasing an annuity is completely optional and can be done for up to 20 per cent of the corpus if desired.
- Corpus between Rs 8 lakh and Rs 12 lakh: The lump sum withdrawal is capped at Rs 6 lakh. The remaining balance can be used to buy an annuity or can be accessed through a systematic withdrawal plan spread over a maximum period of six years.
- Corpus above Rs 12 lakh: The standard new rule applies. At least 20 per cent of the corpus must be used to purchase an annuity, while the subscriber is free to withdraw up to 80 per cent as a tax-free lump sum.
Empowering Subscribers with Greater Financial Control
This regulatory overhaul by the PFRDA marks a substantial move towards giving individuals more autonomy over their retirement savings. By lowering the forced annuity allocation, the authority acknowledges the diverse financial needs of retirees in the non-government sector.
The change directly addresses a long-standing demand for increased liquidity at the time of exit from the pension scheme. It allows retirees greater flexibility to manage large post-retirement expenses, invest according to their own plans, or handle emergencies, while still ensuring a baseline of guaranteed lifetime income through the mandatory 20 per cent annuity. This balanced approach aims to make the NPS a more attractive and subscriber-friendly retirement planning tool for corporate employees and other citizens.
