NPS Withdrawal Rules Relaxed: No Need to Wait Till 60 to Exit, PFRDA Announces Key Changes

In a major relief for retirement savers, the Pension Fund Regulatory and Development Authority (PFRDA) has simplified exit rules under the National Pension System (NPS). The revised guidelines make it easier for subscribers—especially from the non-government sector—to withdraw their money and manage retirement planning more flexibly.

The changes apply to the “All Citizen Model” and are expected to boost participation in the pension scheme by offering greater liquidity and convenience.

Five-Year Lock-In Period Removed

One of the most significant updates is the removal of the mandatory five-year minimum lock-in period for normal exit under the NPS All Citizen Model.

Previously, subscribers were required to stay invested in the scheme for at least five years before they could exit. Under the new rules, investors can now withdraw their funds even before completing five years in the system.

Experts say this move will make the scheme more attractive, particularly for individuals who may need access to funds in emergencies or changing financial circumstances.

Vesting Rules Made More Flexible

PFRDA has also eased the vesting period norms. Under the revised framework, subscribers can exit the scheme after completing 15 years or upon reaching the age of 60—whichever comes earlier.

Earlier, investors typically had to wait until the age of 60 to make a normal exit. The new flexibility gives long-term investors an additional option to access their retirement corpus sooner.

However, it is important to note that subscribers in the corporate sector will continue to follow the existing vesting rules, meaning they can exit only upon reaching the prescribed retirement age.

Higher Lump-Sum Withdrawal Limit

In another investor-friendly move, the regulator has increased the lump-sum withdrawal limit at the time of normal exit.

• Earlier: Up to 60% of the corpus could be withdrawn as a lump sum

• Now: Up to 80% of the corpus can be withdrawn

This change allows retirees to access a larger portion of their savings immediately, improving post-retirement liquidity.

At the same time, the minimum annuity purchase requirement has been reduced from 40% to 20%. This means subscribers now have more flexibility in deciding how much of their retirement savings to convert into a regular pension.

Tax Treatment and Annuity Requirement

According to industry experts, subscribers can withdraw up to 80% of their total corpus at exit. Out of this, 60% of the withdrawal remains fully tax-free under current rules.

The remaining portion must be used to purchase an annuity plan, which provides a regular pension income. With the annuity threshold now lowered to 20%, investors will retain more cash at retirement compared to the earlier framework.

In the event of the subscriber’s death, the entire accumulated corpus can be withdrawn by the nominee as a lump sum, although the annuity option will still remain available.

Why These Changes Matter

The latest reforms are aimed at making the National Pension System more flexible and investor-friendly, particularly for individuals outside the government workforce. By easing exit conditions and increasing withdrawal limits, the regulator hopes to improve the scheme’s appeal among retail investors.

Financial planners believe the move strikes a better balance between long-term retirement discipline and short-term liquidity needs. However, they also advise subscribers to carefully evaluate their retirement goals before making early withdrawals.

Bottom Line: With the removal of the five-year lock-in and higher withdrawal flexibility, NPS has become more accessible than before. Still, investors should use the new exit options prudently to ensure their long-term retirement security remains intact.