The Pension Fund Regulatory and Development Authority (PFRDA) has released a draft proposal seeking to overhaul the exit and withdrawal framework of the National Pension System (NPS), inviting public comments by October 17, 2025. The proposed amendments aim to provide greater flexibility, liquidity, and choice to NPS subscribers, especially those in the non-government sector. Key changes include redefining the concept of “exit,” permitting early withdrawal after 15 years in specific schemes, reducing the mandatory annuitisation requirement, introducing systematic redemption options, extending deferment of exit up to age 85, and offering new one-time switching options for government employees. These reforms are intended to make NPS more subscriber-friendly and attractive, while balancing retirement security with financial flexibility.
What is being proposed
- Redefining “Exit”
The term “exit” under NPS would be broadened. Apart from the current exit points (retirement or turning 60), the draft proposes exit in several other cases, for example:- After subscribing for at least 15 years (for certain non-government schemes, if approved).
- Under the NPS Vatsalya scheme (for minors) when they attain age 18.
- Premature account closure, opting out, death, or being missing/presumed dead.
- Earlier exit possibility
As above, allowing exit after 15 years of participation in a scheme (for non-government sector schemes where such condition is approved). This gives more flexibility. - Lowering mandatory annuitisation
Currently a large portion of the accumulated corpus at exit must go into an annuity (i.e. fixed pension). The draft proposes reducing this “mandatory annuity” portion:- For non-government schemes (“all citizen / corporate model”), the minimum annuity purchase requirement may come down to 20% of the accumulated corpus, from the present 40%.
- New exit / withdrawal options & thresholds
- For subscribers with corpus ≤ ₹ 12 lakh, the draft proposes more flexibility: upto ₹ 6 lakh (or 50% of corpus, whichever is higher) can be taken as lump sum; the rest can be taken via systematic unit redemption or annuity or mix.
- Partial withdrawals: proposed revision of norms including limits, frequency, purposes. More occasions allowed. Even after retirement, partial withdrawals being considered.
- Extension of maximum age / deferment
- Currently NPS accounts must exit by 75 when you delay after superannuation / normal exit. Draft suggests pushing this up to 85 years.
- Also, deferment of purchase of annuity or receiving the accumulated corpus may be allowed till age 85, on request.
- One-time switch from UPS to NPS for central government employees
The draft proposes a facility where central government employees who had opted for Unified Pension Scheme (UPS) can switch back to NPS one-time, one-way. The switch should be exercised “not later than one year prior to superannuation” or “three months prior to the deemed date of retirement” in case of voluntary retirement. - Financial assistance / lien / loan options
Some proposals to allow subscribers to seek financial assistance using their pension account (marking lien) are also in the draft. - Removal of certain procedural requirements
For example, removing the requirement for prior intimation when deferring lump sum or annuity purchase. Also removing vesting (minimum period of service) requirements for normal exit in some cases (e.g. joining after age 60).
Implications
- More flexibility & liquidity: Many of these changes are aimed at giving NPS subscribers more control, especially non-government ones, to access their corpus earlier (after 15 years), take larger lump sums, defer exit, etc.
- Potential trade-off with retirement income security: Reducing mandatory annuity portion could reduce guaranteed pension income later. There’s risk that people may use up funds early and have lower pensions/life coverage later in old age.
- Administrative / regulatory complexity: Different rules for different schemes (government vs non-government; scheme approval needed; thresholds, etc.) may make the system more complex.
- Appeal / adoption: These changes may make NPS more attractive, especially to private sector or self-employed individuals who don’t want to lock funds until 60 or beyond, or whose liquidity needs may push them to exit early.
- Financial planning considerations: Subscribers will need to plan carefully: earlier exit, partial withdrawal, systematically redeeming units — all affect how much corpus remains for retirement, tax implications, etc.
What to watch / questions to ask
- Which schemes will allow the 15-year exit: is it automatic or needs special approvals?
- How the thresholds (like ₹ 12 lakh corpus, ₹ 6 lakh lump sum, or 50%) will apply and whether there are any minimum holding periods, etc.
- What happens in “deferred exit” period: what returns, what investment options, what risks.
- The pricing / cost / tax treatment of systematic unit redemption, annuity options vs lumpsum.
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How the interests of government vs non-government subscribers are balanced.