The Pension Fund Regulatory and Development Authority (PFRDA) has rolled out a major overhaul of the National Pension System (NPS), reshaping how both
government and non-government subscribers can accumulate and withdraw their retirement savings. The most notable change is for non-government subscribers, who can now withdraw up to 80 per cent of their NPS corpus as a lump sum under specified conditions. In certain cases, the entire corpus can even be taken out at one go. Earlier, subscribers retiring at 60 or on superannuation were allowed to withdraw only 60 per cent of their corpus in a lump sum if the total exceeded Rs 5 lakh, with the balance mandatorily deployed into annuities. The revised framework also lowers the compulsory annuity requirement at retirement to a minimum of 20 per cent, down from the earlier 40 per cent, significantly altering retirement cash-flow dynamics. Kurian Jose, CEO, Tata Pension Management, believes the change offers meaningful freedom, according to a report from The Economic Times. "The 80 per cent lump sum withdrawal rule provides greater flexibility to those non-government subscribers who prefer managing their own investments rather than being locked into fixed annuity rates," Jose said. Who Can Withdraw 80 Per Cent, And Under What Conditions The expanded withdrawal option is available to non-government subscribers under clearly defined scenarios. Those who joined NPS before turning 60 and have completed at least 15 years in the scheme can opt for up to 80 per cent lump sum withdrawal on retirement, superannuation, or in cases of physical incapacity. If the retirement corpus is up to Rs 8 lakh, subscribers can withdraw 80 per cent while purchasing annuity from at least 20 per cent. Alternatively, they may even withdraw 100 per cent of the corpus in a lump sum. For those with a corpus between Rs 8 lakh and Rs 12 lakh, multiple combinations are available, including partial lump sum withdrawal with systematic unit redemption (SUR) or annuity purchase. When the corpus exceeds Rs 12 lakh, the 80 per cent-20 per cent lump sum–annuity structure applies. Subscribers who joined NPS at or after the age of 60 also qualify for the enhanced withdrawal rule. Depending on whether their corpus is below or above Rs 12 lakh, they may withdraw up to 80 per cent, or even 100 per cent in select cases, subject to annuity conditions. Liquidity Gains Come With Trade-Offs Tax and retirement experts caution that while liquidity has improved, guaranteed income may shrink. Anita Basrur, Partner, Sudit K. Parekh & Co. LLP, said in the report that the changes “improve liquidity, provide better flexibility at retirement, and could benefit those looking for upfront capital on retirement (like for purchasing or renovating a home).” However, she also warned that reduced annuity allocation could lead to lower assured post-retirement income. Another area still awaiting clarity is taxation. Earlier, 60 per cent lump sum withdrawals at retirement were tax-free. With the limit now raised to 80 per cent, Jose noted the need for explicit guidance on tax treatment. Basrur echoed the concern, stating that clarity on taxability is still pending. Chartered accountants, however, point out that until new rules are notified, only 60 per cent of the withdrawn corpus remains tax-exempt, with the additional 20 per cent likely to be taxable, claims the ET report. What NPS Subscribers Should Keep In Mind The revised NPS rules mark a clear shift towards flexibility and individual choice, but they also place greater responsibility on retirees to manage longevity and income risks. While the ability to access a larger portion of savings upfront can be empowering, balancing immediate needs with long-term financial security will be critical as these reforms take effect.
