The Pension Fund Regulatory and Development Authority (PFRDA) has overhauled the exit and withdrawal rules for the National Pension System (NPS), issuing fresh guidelines in December 2025.
Historically, the scheme has drawn criticism for its rigid exit structure. Investors had little say over how their retirement savings could be accessed, with a large share mandatorily channelled into annuities. Additionally, provisions relating to early withdrawals, death benefits and special cases were either stringent or insufficiently defined.
The revised framework attempts to address these gaps. We examine what the changes entail and their impact on NPS investors.
Annuity Requirement Slashed, More Cash Access at Maturity
Until recently, NPS subscribers faced strict withdrawal limits at retirement, with just 60% of their corpus available as a lump sum and the remaining 40% locked into annuity schemes. These instruments convert a one-time investment into a steady lifelong income.
The updated framework significantly relaxes this condition. The compulsory annuity allocation has been reduced to 20%, enabling investors to withdraw up to 80% of their corpus. They may opt for a lump sum payout or choose staggered withdrawals.
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Relaxed Exit Norms For Low-Value NPS Accounts
Subscribers holding an NPS corpus of Rs 8 lakh or less can now exit the scheme with a full lump sum payout, without any obligation to invest in annuity products. This marks a significant increase from the earlier cap of Rs 2.5 lakh.
Where the corpus lies between Rs 8 lakh and Rs 12 lakh, investors may withdraw up to Rs 6 lakh upfront, with the remainder either invested in annuities or accessed through structured withdrawals.
For larger balances above Rs 12 lakh, the revised norm of 80% lump sum withdrawal and 20% annuitisation remains in force.
Flexible Exit Options
Under the previous regime, exiting the NPS before turning 60 was technically possible but governed by stringent and often confusing rules, effectively discouraging early withdrawals.
The revised norms simplify the process by establishing a 15-year lock-in period. Once this condition is met, subscribers can opt to exit irrespective of their age.
An exit can now be initiated when any one of the following milestones is reached: 15 years in the scheme, age 60, or retirement, whichever comes first.
Retirees Can Now Remain in NPS Until 85
In a significant relaxation, the age cap for remaining invested in the NPS has been raised from 75 to 85. Previously, subscribers had no option but to exit once they reached the earlier limit.
The updated rules remove this compulsion, enabling investors to continue their accounts for a longer duration if they do not immediately require funds.
Subscribers Get an Additional Withdrawal Option Before 60
The NPS framework has been relaxed to allow greater liquidity for investors ahead of retirement. Earlier, only three partial withdrawals were permitted over the entire tenure before the age of 60.
With the latest changes, this cap has been raised to four withdrawals.
A cooling-off period still applies, with a minimum four-year gap required between successive withdrawals.
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