The Pension Fund Regulatory and Development Authority (PFRDA) has mooted a proposal to enable lump-sum withdrawal and systematic unit redemption for National Pension System (NPS) subscribers with corpuses of up to Rs 12 lakh, subject to limits.
If the draft rules framed by the pension regulator were to be finalised in their current form, this limit will go up to Rs 6 lakh. That is, subscribers with a total corpus of up to Rs 12 lakh at the time of exit could be permitted to withdraw up to Rs 6 lakh or 50 percent of the accumulated pension wealth, whichever is higher. “With respect to the balance amount, the subscriber shall avail periodic payouts in the form of systematic unit redemption or such other options, as may be permitted by the Authority, for at least a minimum period of five years, or purchase an annuity for such amount or a mix of both,” PFRDA’s exposure draft says.
Also read: PFRDA to allow 100% equity exposure to NPS subscribers under a new framework
Systematic withdrawal to be a reality?
The systematic unit redemption is an option that will be provided in addition to the existing annuitisation structure for government and non-government subscribers. This marks a partial step towards accepting subscribers’ long-standing demand to provide alternatives – particularly, systematic withdrawal by redeeming the accumulated units -- to mandatory purchase of annuities at the time of exit.
At present, NPS subscribers are allowed to make a lump-sum, complete withdrawal if the accumulated pension corpus is less than Rs 5 lakh at the time of regular exit.
In other cases, where the corpus is larger at the time of regular exit, subscribers can withdraw up to 60 percent as tax-free lump-sum, while the balance has to be mandatorily used to purchase annuities from empanelled life insurers. They can also choose to defer exit till the age of 75 years and opt for systematic, staggered withdrawal in installments from the lump-sum component. The compulsory annuitisation has been a sore point for subscribers who find the lock-in, lower returns and taxability to be obstacles in the path to adopting NPS.
Mandatory annuitisation of 20 percent of the corpus
One of the key proposals includes lowering the mandatory annuitisation threshold from 40 percent to 20 percent at the time of regular exits for non-government subscribers. “…where a subscriber attains the age of sixty years or retires in accordance with the terms and conditions applicable to such subscriber, at least twenty percent out of the accumulated pension wealth of such subscriber shall be mandatorily utilised for purchase of annuity providing for a monthly or any other periodical pension and the balance of the accumulated pension wealth, shall be paid to the subscriber in lump-sum…,” PFRDA’s exposure draft says.
Greater flexibility for Indians relocating abroad
PFRDA is also considering allowing subscribers who have decided to renounce Indian citizenship to close their pension account and withdraw the entire accumulated pension corpus, without having to purchase annuity.
Also read: Golden visa via real estate investment: Why Indians are preferring these global destinations
Higher age of exit
Currently, NPS rules permit regular exit at the age of 60 years. This is when subscribers can exit the system, withdraw up to 60 percent as lump-sum and convert the balance 40 percent into annuities that will ensure pension income for lifetime. However, for those who may not immediately need the corpus, there is an option to defer this withdrawal until the age of 75 years in order to potentially gain from capital appreciation that the investment can offer. The exposure draft proposes increasing this limit to 85 years.
PFRDA has invited suggestions and feedback from all stakeholders to these proposals, which have to be sent by October 17, 2025.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
