Retirement planning under the National Pension System (NPS) has undergone a significant shift in 2025. The Pension Fund Regulatory and Development Authority (PFRDA) has amended exit and withdrawal norms, introducing greater flexibility for subscribers while reducing the extent of mandatory annuitisation.
These changes materially affect how retirement corpus can be accessed, deployed, and managed post-retirement, particularly for non-government subscribers.
Reduced Mandatory Annuity Requirement
One of the most consequential changes relates to the compulsory annuity purchase at exit.
For non-government subscribers with corpus exceeding ₹12 lakh
- Up to 80% of the accumulated corpus can now be withdrawn as a lump sum
- The mandatory annuity portion has been reduced to 20%, from the earlier 40%
This provides retirees with greater control over capital deployment, allowing investments in alternative income-generating avenues such as mutual funds, real estate, or fixed-income instruments.
Note: Government employees continue under the earlier structure, where 60% may be withdrawn as a lump sum and 40% must be used to purchase an annuity.
Revised Exit Options for Smaller Corpus Sizes
To address the issue of negligible pension payouts for lower corpus holders, PFRDA has introduced a tiered exit framework:
Corpus up to ₹8 lakh
- 100% lump-sum withdrawal permitted
- No annuity purchase required
Corpus between ₹8 lakh and ₹12 lakh
- ₹6 lakh may be withdrawn as a lump sum
- The balance may be accessed through Systematic Unit Redemption (SUR)
- SUR allows periodic withdrawals, similar to a systematic withdrawal plan, instead of compulsory annuitisation
- SUR allows periodic withdrawals, similar to a systematic withdrawal plan, instead of compulsory annuitisation
This structure improves liquidity while avoiding inefficient annuity purchases for modest retirement savings.
Loans Against NPS Corpus
Another important reform allows limited liquidity without full exit.
- Subscribers may now pledge NPS assets as collateral
- Loans up to 25% of the subscriber’s own contributions may be availed
This introduces flexibility for post-retirement contingencies, while preserving long-term retirement capital.
Extended Investment Horizon
Recognising longer working lives and delayed retirement planning, the maximum age to remain invested in NPS has been extended:
- Earlier limit: 75 years
- Revised limit: 85 years
Subscribers who do not require immediate withdrawals may allow their corpus to remain invested for a longer compounding period.
Provisions for Missing Subscribers
The amendments also address long-standing procedural challenges faced by nominees when a subscriber is missing.
- 20% of the corpus may now be released immediately as interim relief
- Final settlement will follow completion of legal formalities
This provides partial financial support to families during prolonged legal processes.
Planning Implications for Subscribers
While increased flexibility improves usability, it also shifts greater responsibility to the individual.
- Higher lump-sum withdrawals reduce the forced income-security provided by annuities
- Longevity risk and post-retirement cash-flow planning must be evaluated carefully
- Withdrawal strategies should be aligned with life expectancy, healthcare costs, and risk tolerance
Tax treatment on lump-sum withdrawals and annuity income remains unchanged and should be assessed on a case-specific basis.
Key Takeaway
The revised NPS exit framework marks a transition from a prescriptive retirement product to a more flexible, choice-based structure. While this enhances control and liquidity for subscribers, it also necessitates disciplined financial planning to ensure retirement adequacy.
Professional advice becomes increasingly important as regulatory protection gives way to individual decision-making responsibility.