Non-Govt NPS Subscribers Get Major Flexibility Boost: Mandatory Annuity Halved To 20%

Non-government NPS subscribers can now withdraw up to 80% of their retirement corpus as a lump sum at the time of exit, a decisive shift mandated by the newly notified PFRDA (Exits and Withdrawals under the National Pension System) Amendment Regulations, 2025, which halves the mandatory annuity purchase requirement from 40% to 20%.

This regulatory overhaul, applicable to non-government subscribers including those in the All Citizen Model and Corporate NPS, is aimed to boost the financial flexibility and give individuals better control over how they utilise their accumulated pension wealth (APW). The previous requirement mandated that 40% of the corpus be utilised for a compulsory annuity.

Under the amended regulations, at the normal exit points, such as attaining 60 years of age or completing the minimum subscription period of not less than 15 years, or upon superannuation, a minimum of 20% of the APW must be utilised for purchasing an annuity that provides a periodic pension income.

The remaining balance, up to 80%, may be withdrawn as a lump sum, through periodic payouts via systematic lump sum withdrawal, or systematic unit redemption, or any other option approved by the authority.

Government sector NPS subscribers, however, will continue to face the mandatory 40% annuity purchase rule.

The compulsory 20% annuity rule is subject to specific corpus-based thresholds that offer total flexibility for smaller savings:

Corpus up to Rs 8 lakh: Subscribers are permitted to withdraw 100% of the corpus as a lump sum.

Corpus between Rs 8 lakh and Rs 12 lakh: Subscribers can withdraw up to Rs 6 lakh as a lump sum. The balance beyond the Rs 6 lakh limit must be utilised for annuity purchase or structured withdrawal mechanisms, over a minimum period of six years.

Corpus exceeding Rs 12 lakh: The 20% mandatory annuity purchase rule strictly applies, and subscribers can withdraw up to 80% of the APW as a lump sum.

A crucial point for non-government subscribers is the tax implication of the additional withdrawal.

While 60% of the NPS corpus withdrawn as a lump sum remains tax-free, the additional 20% made withdrawable by this amendment will be taxable according to the prevailing tax slabs.