Non-government National Pension Scheme (NPS) subscribers can now withdraw up to 80% of their retirement corpus as a lump sum when they exit the scheme, thanks to the latest changes in the rules.
The PFRDA (Exits and Withdrawals under the National Pension System) Amendment Regulations, 2025, notified on Tuesday, 16 December, bring a major shift in how retirement benefits are paid to non-government subscribers, including those under the All Citizen Model and Corporate NPS.
Here is a detailed breakdown of the revised NPS rules, explaining how subscribers with different sizes of retirement corpus will be affected.
What are the changes?
Before the latest changes, retirees were required to mandatorily invest 40% of their corpus in an annuity plan, which meant only 60% of their money was available to be withdrawn as a lump sum during exit.
One of the most significant changes is in the compulsory annuity purchase rule. Under the new regulations, retirees now need to use only 20% of their accumulated pension savings to purchase an annuity, leaving them free to withdraw the remaining 80% as a lump sum.
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However, this framework only applies to subscribers with a corpus exceeding ₹12 lakh. With the new rules, they will have more flexibility to access their savings and plan their finances according to their needs.
“NPS is a lot more attractive now compared to PPF and EPF, since it is very flexible in terms of amount invested by subscriber, no lock-in for private sector employees, asset mix and better potential returns,” said BLS E-Services Chairman Shikhar Aggarwal.
What does the 20% corpus for annuity purchase rule offer?
For non-government NPS subscribers whose total pension savings exceed the specified monetary threshold of ₹12 lakh, the new rules require at least 20% of the pension wealth to be used to purchase an annuity, which guarantees a regular monthly pension income.
The remaining (up to 80%) can be withdrawn as a lump sum, or through structured withdrawals, like a systematic unit withdrawal plan, giving retirees flexibility in how they access their funds.
This rule applies when subscribers exit the NPS at the normal retirement age of 60, after completing the minimum subscription period, or even if they exit between the ages of 60 and 85.
Are there tax implications on withdrawing up to 80% as a lump sum?
At present, there remains a need for tax clarity regarding the enhanced 80% withdrawal rule. According to the existing rules, up to 60% of a lump sum withdrawal at retirement is tax-free, while annuity income is taxable.
“With the new limit increased to 80%, investors should remain prudent until official tax guidelines are provided. In the meantime, retirees should act conservatively in their planning, make a provision for the possibility that tax treatment may change, and seek advice from advisors before deciding on any large sum withdrawals,” said Siddharth Maurya, Founder and Managing Director of the financial firm Vibhavangal Anukulakara.
What are the rules for people with a smaller corpus amount?
The rules differ for retirees with an accumulated corpus that does not exceed ₹8 lakh. In such a case, the entire amount can be withdrawn in a lump sum.
For subscribers with a retirement corpus between ₹8 lakh and ₹12 lakh, they can withdraw up to ₹6 lakh upfront. The remaining amount must be used to buy an annuity with a minimum tenure of six years, ensuring a steady monthly pension.
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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.
However, the ability to withdraw a large sum of money comes with its own pros and cons. While lump sum withdrawal can offer liquidity, control, and estate planning flexibility, it also carries the risk of mismanagement or rapid depletion, said Shreya Sharma, CEO and Founder of Rest The Case, a platform for legal support.
“The key advantage of the new rules is that the choice lies with the subscriber, not the system,” she added.