National Pension System update: Major changes for NPS subscribers as PFRDA removes 5-year lock-in, eases exit norms

Retirement

The Pension Fund Regulatory and Development Authority (PFRDA) on December 16 announced key amendments to the National Pension System (NPS), aimed at providing greater flexibility to subscribers from non-government sectors.

The exit rules under the non-government sector have become significantly more flexible under the Common Schemes (CS) and Multiple Scheme Framework (MSF). Earlier, subscribers could withdraw up to 60% of their corpus as a lump sum at exit, with at least 40% mandatorily used to buy an annuity.

Under the revised framework for corpus exceeding Rs 12 lakh, the new rule is shifted to 80:20, allowing subscribers to take up to 80% as a lump sum while requiring only 20% to be annuitised. The change gives retirees greater control over their money, higher liquidity at exit, and more freedom to manage retirement income according to their needs.

However, if the total accumulated corpus does not exceed Rs 8 lakh, the entire amount can be withdrawn in a lump sum. For those with a corpus above Rs 8 lakh up to Rs 12 lakh, withdrawals of up to Rs 6 lakh are allowed upfront, while the remaining balance must be deployed towards an annuity with a minimum tenure of six years.

The revised rules now allow subscribers to remain invested until the age of 85, unless they choose to exercise an exit option. Normal exit has now been permitted after completing 15 years of subscription or upon attaining 60 years of age, superannuation, or retirement—whichever comes first.

Moreover, the new amendment has removed the mandatory lock-in period of five years for the non-government subscribers of NPS. Furthermore, the regulations also introduce relaxed withdrawal norms for subscribers with smaller pension balances.

For government employees under NPS, the five-year lock-in period is mandatory for any exits to be permitted. The normal exit is permitted after 60 years of age, wherein 100% withdrawal is permitted if the corpus is less than Rs 5 lakh. For accumulated wealth exceeding Rs 5 lakh, 40% will be subject to annuity, and the remaining balance can be withdrawn upfront.

Here’s a breakdown of the announcement for exit and withdrawal from the National Pension System for non-government sector subscribers. For complete detailed changes, the PFRDA has uploaded the PFRDA (Exits and withdrawals under the NPS) (Amendment) Regulations, 2025 on their official website.

• A subscriber can remain with NPS until 85 years, unless an exit option is exercised. 
• Normal exit is allowed after 15 years of subscription, or till 60 years, superannuation or retirement, whichever is earlier. 
• If the pension corpus is above Rs 12 lakh, 20% of the corpus will be utilised for annuity, and the remaining balance will be paid in a lump sum. 
• An entire corpus can be withdrawn in a lump sum if the accumulated wealth doesn’t exceed Rs 8 lakh. 
• If the corpus is between Rs 8-12 lakh, withdrawal is allowed up to Rs 6 lakh in a lump sum, and the remaining balance will be utilized for at least six years annuity. 
• Upon the death of subscribers before annuity purchase or lump sum withdrawal, the accumulated pension wealth shall be paid to the nominees or legal heirs. 
• In case of renunciation of citizenship, subscribers can exit from NPS by closing the individual pension account and withdrawing the entire accumulated pension wealth in a lump sum. 
• If the subscriber is missing and presumed dead, the nominees or legal heirs will be paid 20% of the corpus as interim relief, and the remaining balance upon determination as missing and presumed dead as per the provisions of the Bharatiya Sakshya Adhiniyam, 2023.

• Upon premature exit from NPS, at least 80 percent of the corpus will be utilized for annuity, and the remaining balance shall be paid in a lump sum. 
• If the pension balance is less than Rs 5 lakh, the entire amount can be withdrawn in a lump sum. 
• The exit option for subscribers who are physically incapacitated or disabled (at least 75%) requires them to furnish a medical certification from a government surgeon or doctor.