NPS New Rules: The 5-year lock-in period is over, 80% of the amount can be withdrawn, PFRDA provides major relief..

The Pension Fund Regulatory and Development Authority (PFRDA) has made significant changes to the rules of the National Pension System (NPS). The PFRDA (Exits and Withdrawals Under the National Pension System) Amendment Regulations 2025, notified on December 16, have made the NPS much more flexible for private sector employees and general citizens. The 5-year lock-in period has been removed for non-government subscribers. The lump-sum withdrawal amount has been increased, and the limit for continuing investment in NPS has also been raised.

Until now, the biggest hurdle for those investing in NPS has been the 'lock-in period'. Under the old rules, a 5-year lock-in was mandatory for non-government sector subscribers. This meant that you could not withdraw from the scheme for 5 years after opening the account. The 5-year lock-in will still apply to government employees. This change is a huge relief for those who were hesitant to invest in NPS due to the fear of their money being locked in for a long period.

More Cash in Hand
The biggest change in the NPS exit rules concerns the withdrawal ratio. This is technically called the exit ratio. Previously, when a subscriber retired or exited the scheme, they had to invest at least 40% of their total accumulated fund (corpus) in an annuity. An annuity is the amount from which a monthly pension is received. The subscriber could only withdraw 60% of the money as a lump sum.

According to the amended rules, if a subscriber's total corpus is more than Rs. 12 lakh, the 80:20 rule will now apply. 80% of the total fund can be withdrawn as a lump sum. Only 20% of the amount will have to be used to purchase an annuity (pension plan). This will result in more cash in hand for retirees. They will be able to use this money to build a house, get their children married, repay debts, or make other investments, instead of a large portion of it being locked into a pension plan.

The PFRDA has further simplified the rules for small and medium-sized investors so that they are not forced to buy a pension plan. Two different slabs have been created for this purpose. If the total accumulated fund (corpus) is Rs 8 lakh or less, there will be no obligation to buy an annuity. The entire amount can be withdrawn in a lump sum. Subscribers whose fund is more than Rs 8 lakh but up to Rs 12 lakh can withdraw a maximum of Rs 6 lakh in a lump sum. The remaining amount will have to be invested in an annuity scheme with a minimum tenure of 6 years.

Opportunity to invest until the age of 85
The PFRDA has also extended the timeframe for remaining invested. According to the new rules, subscribers can now continue their investment in NPS until the age of 85. Earlier, in many cases, accounts were only allowed to remain active until the age of 70 or 75. This change means that if a person does not need the money at the age of 60, they can leave their money invested for another 25 years and benefit from compounding.

Strict rules for premature withdrawal
The rules for prematurely closing the scheme have been clarified to ensure that it remains a retirement product. If a subscriber exits the scheme before maturity (60 years of age or 15 years of membership), they will have to invest at least 80% of their total fund in an annuity. They will only be able to withdraw 20% of the amount in cash. If the total fund is less than Rs 5 lakh, the entire amount can be withdrawn in a lump sum, even in case of premature withdrawal.

Keeping family security in mind, the PFRDA has also clarified the claim settlement process. If the subscriber dies before purchasing an annuity or withdrawing the money, the entire accumulated amount (100%) will be paid to the nominee or legal heir. There will be no condition regarding the purchase of an annuity. If a subscriber goes missing and is legally presumed dead, 20% of the amount will be paid to the nominee as immediate relief. The remaining amount will be paid upon completion of the legal procedures and in accordance with the provisions of the Indian Evidence Act, 2023.

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