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In a major relief for National Pension System (NPS) subscribers, the Pension Fund Regulatory and Development Authority (PFRDA) has eased exit rules, making it simpler and more flexible for investors to access their retirement savings. The revised norms are expected to boost the scheme’s appeal, especially among private-sector and individual investors.

The regulator has introduced several important changes under the All Citizen Model, allowing subscribers greater freedom in withdrawing their funds and managing retirement planning.

Lock-in Period of Five Years Removed

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

Earlier, NPS subscribers were required to remain invested for at least five years before they could exit the scheme. With the new rules, this restriction has been scrapped. Subscribers can now withdraw their money even before completing five years in the system.

Financial experts believe this move will improve liquidity and make NPS more attractive to individuals who may need access to their funds during emergencies or changing financial circumstances.

Easier Vesting Period Norms

The PFRDA has also simplified vesting rules for subscribers under the All Citizen Model.

Under the revised framework, investors can exit the scheme after 15 years or upon reaching the age of 60 — whichever comes earlier. Previously, subscribers generally had to wait until the age of 60 to make a full exit.

However, it is important to note that corporate sector subscribers will not benefit from this specific change. For them, the vesting conditions remain unchanged, and withdrawals will continue to be linked to the retirement age as per existing norms.

Lump Sum Withdrawal Limit Increased

Another major reform is the increase in the lump sum withdrawal limit at the time of normal exit.

• Earlier: Subscribers could withdraw up to 60% of the corpus as a lump sum.

• Now: The limit has been raised to 80% of the total corpus.

This means retirees will have significantly more cash in hand at the time of exit, improving financial flexibility during retirement.

At the same time, the minimum annuity purchase requirement has been reduced from 40% to 20% of the corpus. This gives subscribers greater control over how much they want to convert into a pension income stream.

What Experts Are Saying

According to Pranay Ranjan Dwivedi, Managing Director and CEO of SBI Pension Funds, the revised rules will materially benefit subscribers.

He noted that investors can now withdraw up to 80% of their retirement corpus, out of which 60% will remain fully tax-free, while at least 20% must be used to purchase an annuity.

This change is expected to enhance post-retirement liquidity while still ensuring a steady pension flow.

Rules in Case of Subscriber’s Death

The updated guidelines also provide clarity on nominee benefits. In the unfortunate event of the subscriber’s death, the entire accumulated corpus can be withdrawn as a lump sum by the nominee. However, the option to purchase an annuity will continue to remain available if the nominee prefers a regular income stream.

Why These Changes Matter

The latest reforms are primarily aimed at increasing participation in the NPS, particularly among non-government and retail investors. By improving flexibility, reducing lock-in constraints, and allowing higher lump sum withdrawals, the regulator hopes to make the retirement scheme more investor-friendly.

For individuals seeking both long-term retirement planning and partial liquidity, the new NPS exit rules could make the scheme significantly more attractive than before.

Bottom Line: With the removal of the five-year lock-in, relaxed vesting norms, and higher lump sum withdrawal limits, the National Pension System has become more flexible. Subscribers should, however, review their retirement goals carefully before making exit decisions.