The Pension Fund Regulatory and Development Authority (PFRDA) has notified a series of changes to the exit and withdrawal framework of the National Pension System (NPS), allowing subscribers to access greater financial flexibility during their working life as well as at retirement.

 

Under the amended NPS (Exit and Withdrawals) Regulations, subscribers are now permitted to raise loans or financial assistance against their accumulated pension savings from regulated financial institutions. Such lending arrangements may involve creating a lien or charge on the individual NPS account, subject to conditions prescribed by the regulator. However, the exposure has been capped, with the loan amount restricted to a maximum of 25% of the subscriber’s own contributions, in line with existing partial withdrawal limits.

 

PFRDA has clarified that while lenders may mark a charge on the NPS account, any assignment, pledge, or encumbrance beyond what is explicitly permitted will remain invalid unless approved by the NPS Trust. Detailed operational guidelines for record-keeping agencies and intermediaries will be issued separately.

 

The regulator has also rationalised the permitted purposes for partial withdrawals. The existing provision allowing one-time withdrawal for the purchase or construction of a residential house — provided the subscriber does not already own a non-ancestral home — has been retained and explicitly clarified as a single-use facility.

 

At the same time, the scope of withdrawals for medical purposes has been significantly expanded. The earlier requirement that withdrawals be limited to a predefined list of critical illnesses has been removed. Subscribers may now withdraw funds for medical treatment or hospitalisation of themselves, their spouse, children, or parents, without linking the claim to a specific disease category.

Conversely, certain purposes have been removed from the eligible list. Withdrawals for skill development, re-skilling or self-development activities, as well as for setting up a start-up or own venture, are no longer permitted. Instead, a new purpose has been added, allowing partial withdrawal for the settlement of financial obligations owed to regulated financial institutions.

 

The amendments have also been extended to the Multiple Scheme Framework (MSF) applicable to non-government subscribers, bringing it in line with the All Citizen Model. Notably, the earlier mandatory minimum subscription period of five years has been removed for both common schemes and MSF options.

 

Further, the vesting period has been revised. Instead of a fixed requirement of vesting until age 60, subscribers may now exit after completing 15 years under a scheme, or upon attaining 60 years of age, whichever is earlier.

 

Significant relief has also been provided at the time of exit. Non-government NPS subscribers are now allowed to withdraw up to 80% of their accumulated corpus as a lump sum, with only 20 % mandatorily allocated towards annuity purchase. This represents a relaxation from the earlier requirement of at least 40% annuitisation.

 

For subscribers with a total corpus of up to 12 lakh at retirement, full withdrawal of the accumulated amount has been permitted without the requirement to purchase an annuity. In cases where the corpus exceeds 12 lakh but is up to 20 lakh, a lump sum withdrawal of up to 8 lakh is allowed, with the balance required to be invested in annuity or other approved instruments.

 

Where the total corpus exceeds 8 lakh but is up to 12 lakh, subscribers may withdraw up to 6 lakh as a lump sum. The remaining amount must be invested in a Systematic Withdrawal Request (SWR), annuity, or other approved options. Any balance not withdrawn must be invested in the Systematic Withdrawal Income (SURI) framework or equivalent approved instruments for a minimum period of six years.

 

Overall, the changes aim to improve liquidity, enhance flexibility, and make the NPS more responsive to subscribers’ evolving financial needs, while maintaining safeguards around retirement adequacy. By allowing limited borrowing against pension savings and simplifying exit norms, the regulator has sought to strike a balance between long-term retirement security and short- to medium-term financial access.