New NPS Exit and Withdrawal Rules Explained: Complete Guide for Investors

For years, the National Pension System (NPS) was considered one of the most tax‑efficient yet most restrictive retirement products in India.

While it offered disciplined long‑term Investing and attractive tax benefits under Section 80C and 80CCD(1B), many investors hesitated because of rigid exit rules, mandatory annuity lock‑ins, and limited withdrawal flexibility.

That perception has now changed.

On December 16, 2025, the Pension Fund Regulatory and Development Authority (PFRDA) notified a comprehensive overhaul of NPS exit and withdrawal norms. These reforms significantly improve liquidity, clarity, and investor control — addressing almost every major concern that existed earlier.

In this detailed guide, we explain the latest NPS exit and withdrawal rules, what has changed, and how these updates impact long‑term investors and retirees.

Why Were NPS Rules Changed?

India’s retirement landscape has evolved rapidly over the last decade.

• People change jobs frequently
• Many continue working after 60
• Retirement planning now involves Mutual Funds, EPF, NPS and personal investments
• Investors prefer flexibility rather than forced lock‑ins

The earlier NPS structure was designed mainly for government employees, not for today’s dynamic workforce. The new framework aims to:

• Reduce compulsory annuity exposure
• Improve withdrawal flexibility
• Simplify death and early‑exit rules
• Allow NPS to function as a true long‑term retirement and estate‑planning product

Key Highlights of the New NPS Rules

• Up to 80% lump sum withdrawal allowed at retirement
• Only 20% mandatory annuity requirement
• 100% withdrawal permitted for corpus up to ₹8 lakh
• Early exit allowed after 15 years of investment
• NPS Account can continue up to age 85
• Four partial withdrawals allowed before age 60
• Partial withdrawals allowed even after retirement
• Clear rules for nominee withdrawals on death
• Loan facility introduced against NPS corpus

Let’s understand each rule in detail.

1. Withdraw Up to 80% at Retirement (Only 20% Mandatory Annuity)

Earlier Rule:

• Maximum 60% lump sum withdrawal
• Mandatory 40% investment in annuity

Revised Rule:

• Up to 80% of NPS corpus can be withdrawn
• Only 20% must be used to purchase an annuity

The 80% withdrawal can be taken as:

• One‑time lump sum, or
• Structured / systematic withdrawals

Why this change matters

Annuity products in India typically generate low returns and offer limited inflation protection. Reducing compulsory annuity allocation directly improves retirement flexibility and potential wealth utilisation.

This is widely considered the most investor‑friendly reform in NPS history.

2. 100% NPS Withdrawal Allowed for Small Corpus

If the total NPS corpus is ₹8 lakh or less, the subscriber can withdraw 100% as a lump sum. No annuity purchase is required. Earlier, this limit was only ₹2.5 lakh — which most investors crossed within a few years.

Revised slab structure

• Up to ₹8 lakh → 100% lump sum allowed
• ₹8–12 lakh → Up to ₹6 lakh lump sum + balance via annuity or structured withdrawals
• Above ₹12 lakh → 80% lump sum + 20% annuity

This change significantly benefits small and mid‑income investors.

3. Early Exit Allowed Before Age 60

Previously, exiting NPS before 60 was technically possible but operationally complicated.

New rule introduces clarity

A minimum lock‑in period of 15 years has been defined. You can exit NPS when any one of the following conditions is met:

• Completion of 15 years in NPS, or
• Attaining 60 years of age, or
• Retirement from employment

Whichever occurs first allows exit.

This makes NPS far more suitable for private‑sector professionals and self‑employed individuals.

4. NPS Account Can Continue Till Age 85

Earlier, NPS forced exit at 75 years.

Under the revised framework:

• Subscribers may continue their NPS account until 85 years of age

Why this is important

• Many retirees have alternate income sources
• Some do not require retirement corpus immediately
• Long‑term compounding continues tax‑efficiently

This change also allows NPS to be used as a long‑term estate‑planning tool, something earlier not possible.

5. Simplified Withdrawal Rules on Death of Subscriber

Earlier death‑related exit rules were complex and often confusing for families. The revised rules now clearly define options based on corpus size.

If corpus is up to ₹8 lakh

Nominee or legal heir may:

• Withdraw entire amount as lump sum, or
• Opt for systematic withdrawals, or
• Purchase annuity, or
• Withdraw up to 20% lump sum and invest at least 80% in annuity

If corpus is between ₹8–12 lakh

• Up to ₹6 lakh lump sum allowed
• Remaining amount via:
  • Systematic withdrawals for minimum 6 years, or
  • Annuity purchase

Alternatively:

• 20% lump sum + 80% annuity option remains available

If corpus exceeds ₹12 lakh

• Up to 20% lump sum allowed
• At least 80% must be used to purchase annuity

These rules bring predictability and reduce settlement delays for nominees.

6. Up to Four Partial Withdrawals Allowed Before Age 60

Earlier:

• Only three partial withdrawals allowed in entire tenure

Now:

• Up to four partial withdrawals permitted

Conditions:

• Minimum four‑year gap between two withdrawals

• Withdrawals allowed only for approved purposes such as:

  • Higher education
  • Medical treatment
  • Home purchase or construction
  • Critical illness

This improves liquidity without compromising long‑term discipline.

7. Partial Withdrawals Allowed Even After Retirement

If a subscriber continues NPS after 60 and has not opted for systematic withdrawal:

• Partial withdrawals are permitted
• Minimum three‑year gap between two withdrawals

Withdrawal limit

Each withdrawal is capped at:

• 25% of subscriber’s own contribution

If there is no employer contribution, the 25% limit applies to the entire contribution base.

8. Exit on Renunciation of Indian Citizenship

If an NPS subscriber renounces Indian citizenship:

• The NPS account can be closed immediately
• 100% corpus withdrawal allowed as lump sum
• No annuity requirement applies

This rule provides clarity for NRIs and globally mobile professionals.

9. Loan Facility Against NPS Corpus

A major structural reform introduced under the new framework:

• NPS corpus can now be used as Collateral for loans

Key points:

• Loans can be availed from regulated financial institutions
• Loan limits and terms will be prescribed by PFRDA

This significantly enhances the practical utility of NPS while keeping retirement money invested.

How These Changes Improve NPS as a Retirement Product

Over the past five years, PFRDA has implemented more than 60 reforms.

Together, the new exit and withdrawal rules:

• Reduce forced annuity exposure
• Improve liquidity
• Provide early‑exit flexibility
• Extend investment horizon
• Simplify nominee processes
• Enable borrowing without liquidation

NPS now combines:

• Long‑term equity participation
• Low expense ratios
• Strong tax efficiency
• Improved investor control

Final Thoughts: Is NPS Worth Considering Now?

With the revised rules, NPS is no longer a rigid pension product.

It has evolved into:

• A structured retirement solution
• A long‑term tax‑efficient investment avenue
• A flexible post‑retirement income planning tool

For investors looking to build a disciplined retirement corpus — especially alongside EPF and mutual funds — NPS has become far more relevant than before. As with any financial product, allocation should depend on income level, retirement horizon, and overall Portfolio strategy.

But one thing is clear:

The new NPS framework finally puts investors — not restrictions — at the centre of retirement planning.