In a significant boost for private sector employees, self-employed individuals, and other non-government subscribers to the National Pension System (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has amended its exit and withdrawal regulations. Notified on December 16, 2025, the changes reduce the mandatory annuity purchase requirement from 40% to just 20% of the accumulated corpus in most cases, allowing up to 80% to be withdrawn as a lump sum upon retirement or normal exit.

Previously, non-government subscribers were required to allocate at least 40% of their retirement savings to buy an annuity for guaranteed lifetime income, limiting lump-sum withdrawals to 60%. The new rules, applicable to normal exits at age 60 or after completing 15 years of subscription, provide tiered options based on corpus size: full 100% lump-sum withdrawal for corpora up to Rs 8 lakh; up to Rs 6 lakh lump sum for fund between Rs 8 lakh and Rs 12 lakh (with the balance structured over time); and 80% lump sum with 20% annuity for larger amounts exceeding Rs 12 lakh.

Financial experts have hailed the move as a game-changer for retirement planning. Founder and CEO of a wealth management firm emphasized the increased liquidity it offers. "This gives subscribers more control over their money in old age," he noted, adding that while annuity rates are typically low (around 5-6%), disciplined investors can now deploy the larger lump sum into mutual funds or systematic withdrawal plans (SWPs) for potentially better returns.

However, another section of financial experts cautioned about the risks. They point out that the main drawback is for those lacking financial discipline—if the lump sum is spent recklessly post-retirement, it could leave individuals without sustained income. They also stressed that the guaranteed lifetime pension from annuities, though modest, provides security that self-managed withdrawals might not.

Another senior functionary at a stock trading firm highlighted the tax advantages making NPS more attractive, especially for high-income earners. Employer contributions to NPS remain fully tax-exempt under Section 80CCD(2), with no upper limit, effectively delivering an immediate 30% return for those in the highest tax bracket. Combined with recent labor law tweaks increasing basic salary components routed to provident funds, he viewed the changes as aligning debt and equity exposures favorably—EPF for stable returns and NPS for growth-oriented equity options. He also addressed taxation on withdrawals: the lump-sum portion (previously 60%, now up to 80%) is tax-free, though he anticipates potential budget clarifications to fully exempt the additional 20%. For high-net-worth individuals with substantial NPS corpora, the enhanced flexibility significantly boosts the scheme's appeal over alternatives like mutual funds.

On rethinking retirement portfolios, wealth managers advised prioritizing NPS for its limited but low-cost fund options and employer contributions where available. "For those with market knowledge, mutual funds offer more choices across caps and sectors," they said, but recommended NPS as a core building block for less-savvy investors. Various experts agreed the changes do not make EPF less attractive, as employer mandates remain unchanged. In closing, the reforms underscore a shift toward subscriber empowerment. While government employees retain the older 40% annuity rule, private sector participants now enjoy greater autonomy over their hard-earned retirement funds—provided they approach it with prudence and long-term planning. These updates are expected to encourage higher voluntary contributions and broader NPS adoption among non-government professionals.