NPS Withdrawal: A single rupee mistake can jeopardize your pension; know the rules before withdrawing money..

When planning for retirement, almost everyone wonders how much income they will have each month after retirement and how they will manage their expenses. This question becomes even more crucial if you have invested in the National Pension System (NPS), especially if you are planning to withdraw a large sum at retirement. The new NPS rules implemented in 2025 certainly give investors more freedom, but if not understood correctly, this freedom could weaken your retirement security in the long run.

Changes in NPS Rules
Significant changes have been made to the exit and withdrawal rules related to NPS, implemented by the pension regulator, the Pension Fund Regulatory and Development Authority (PFRDA). These new rules specifically apply to non-government subscribers, such as those under the All Citizen Model and Corporate NPS. The biggest change is that the mandatory investment limit in an annuity (pension) at retirement has been reduced from 40% to 20%.

This means that you can now withdraw up to 80% of your NPS corpus as a lump sum, and in some specific cases, you may even be allowed to withdraw the entire 100%.

More Cash After Retirement
This change sounds great, as having more cash in hand at retirement is a relief for many. However, it is crucial to understand the annuity rule here. An annuity is a system that provides you with a fixed monthly pension after retirement and helps meet your regular expenses. According to the new rules, if your total NPS corpus is more than ₹12 lakh, it is mandatory to purchase an annuity with at least 20% of the amount. The remaining 80% can be withdrawn as a lump sum or in installments. How much money for what corpus?
Investors are given different options depending on the size of their corpus. If your total NPS amount is up to Rs 8 lakh, you can withdraw the entire amount at once. If the corpus is between Rs 8 lakh and Rs 12 lakh, Rs 6 lakh can be withdrawn as a lump sum, and the remaining amount can be taken as an annuity or in installments. However, if your corpus is more than Rs 12 lakh, a 20% annuity will be mandatory, and you will have the option to withdraw 80% of the amount as a lump sum.

What are people thinking wrong?
This is where the biggest and most expensive mistake is likely to occur. In reality, seeing a large lump sum, many people withdraw the entire amount or most of the amount and ignore their future monthly income needs. The truth is that challenges like medical expenses, rising inflation, and increased life expectancy after retirement make a regular pension extremely important. So, if you don't choose a sufficient annuity, financial pressure can increase after a few years, and there is a risk of the accumulated amount running out quickly.

NPS makes retirement safe
The new NPS rules certainly bring flexibility to retirement planning, but striking the right balance is your responsibility. Making a thoughtful decision between a lump sum and an annuity is the key to a secure and stress-free retirement.

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