NPS Exit & Withdrawal (Amendment) Regulations, 2025

22.12.2025

NPS Exit & Withdrawal (Amendment) Regulations, 2025

Context

In December 2025, the Pension Fund Regulatory and Development Authority (PFRDA) notified significant amendments to the National Pension System (NPS) exit and withdrawal norms. These changes are designed to provide greater liquidity, flexibility, and control to subscribers, particularly those in the non-government sector.

Key Features of the 2025 Amendment

1. Higher Lump Sum Withdrawal (Non-Government Sector):

• Withdrawal Limit: Non-government subscribers can now withdraw up to 80% of their accumulated corpus as a lump sum (up from the earlier 60%).
• Mandatory Annuity: The compulsory purchase of an annuity has been reduced from 40% to 20%.
• Government Subscribers: The existing 60:40 ratio (60% lump sum and 40% annuity) continues for government employees.

2. Corpus-Based Flexibility: The mandatory annuity requirement now varies based on the total accumulated pension wealth:

• Corpus ≤ ₹8 Lakh: 100% lump sum withdrawal is permitted; annuity is optional.
• Corpus ₹8 Lakh – ₹12 Lakh: Subscribers can withdraw up to ₹6 lakh as a lump sum, with the balance available for annuity or systematic unit redemption (SUR) over at least 6 years.
• Corpus > ₹12 Lakh: Mandatory 20% annuity for non-govt (40% for govt), with the remainder available as lump sum or SUR.

3. Enhanced Exit Deferment:

• Subscribers can now defer their lump sum withdrawal or annuity purchase up to the age of 85 years (previously 75 years). This allows the corpus to remain invested and grow longer if immediate liquidity is not required.

4. Loans Against NPS:

• For the first time, subscribers are permitted to take loans from regulated financial institutions by pledging their NPS corpus. The loan amount is limited to 25% of the subscriber's own contributions.

5. Partial Withdrawal Clarifications:

• Purpose: Broadened to include any medical treatment/hospitalization for self or family and one-time house construction.
• Frequency: Partial withdrawals are allowed up to 4 times before age 60 (with a 4-year gap) and every 3 years after age 60 if the subscriber continues the account.

6. Missing Subscriber Provision:

• Nominees are entitled to an interim relief of 20% of the corpus if a subscriber is missing. The balance is settled after the legal presumption of death as per the Bharatiya Sakshya Adhiniyam, 2023.

About National Pension System (NPS)

• Nature: A market-linked, defined-contribution retirement scheme.
• Eligibility: Open to all Indian citizens (18–70 years), including NRIs and corporate employees.
• Structure:
  • Tier I: Mandatory retirement account with tax benefits and restricted withdrawals.
  • Tier II: Voluntary savings account with high liquidity and no withdrawal restrictions.
• Tax Status: Currently, 60% of the lump sum withdrawal is tax-exempt. With the increase to 80%, further clarity from tax authorities is expected regarding the additional 20%.

Conclusion

The 2025 amendments mark a shift from a rigid "one-size-fits-all" model to a highly personalized retirement tool. By lowering annuity compulsions and raising the investment age to 85, PFRDA has effectively positioned NPS as a competitive alternative to other long-term investment assets. This "NPS 2.0" framework balances the need for an immediate cash cushion at retirement with long-term pension security.