Major NPS rule change: 80% withdrawal from retirement corpus allowed at exit, 100% in some cases

Significant changes are coming to the National Pension System (NPS) for non-government subscribers, offering greater flexibility in accessing their retirement funds. According to new regulations taking effect in 2025, subscribers can withdraw up to 80% of their accumulated pension wealth as a lump sum upon exiting the system. The remaining amount, a minimum of 20%, must be used to purchase an annuity, providing a regular pension income.

The Pension Fund Regulatory and Development Authority (PFRDA) has announced these amendments to the NPS rules, specifically impacting those in the non-government sector, including All Citizen Model and Corporate NPS members. The core change involves adjusting the mandatory annuity purchase requirement, setting it at a minimum of 20% of the total pension wealth at the time of exit, applicable in specific scenarios.

**Understanding the 20% Annuity Rule**

For non-government NPS subscribers with a total accumulated pension wealth exceeding certain thresholds, at least 20% of their funds must be allocated to purchase an annuity, ensuring a periodic pension income. The balance, up to 80%, can be withdrawn as a lump sum or through systematic withdrawal plans.

This rule applies both at the normal exit points, such as reaching 60 years of age or completing the minimum subscription period, and also for exits occurring between the ages of 60 and 85.

**Thresholds for Compulsory Annuity Purchase**

The requirement to purchase an annuity is not absolute and depends on the size of the retirement corpus:

• Corpus up to ₹8 lakh:** Subscribers can withdraw the entire amount (100%) as a lump sum. They also have the option to use at least 20% for annuity purchase and withdraw 80% as a lump sum.
• Corpus above ₹8 lakh and up to ₹12 lakh:** Subscribers can withdraw up to ₹6 lakh as a lump sum. The remaining amount can be used to either purchase an annuity plan or opt for a systematic unit redemption (SUR) plan for a minimum of six years, allowing for staggered withdrawals directly from the NPS corpus.
• Corpus exceeding ₹12 lakh:** Subscribers must use at least 20% of the accumulated corpus to buy an annuity. They can withdraw up to 80% of their retirement savings as a lump sum.

These changes provide non-government NPS subscribers with greater control over how they utilize their retirement savings. Previously, subscribers were generally required to allocate 40% of their pension wealth towards annuity purchase at the time of exit. The reduction of this mandatory requirement to 20% significantly increases the flexibility for NPS subscribers, allowing them to decide how to best manage their funds during retirement.