For years, the National Pension System (NPS) was seen as disciplined but rigid. While investors appreciated the tax benefits, they often felt constrained by strict exit rules, mandatory annuity requirements, and limited liquidity.
That perception is now changing.
Recent reforms by the Pension Fund Regulatory and Development Authority (PFRDA) have quietly reshaped NPS into a more investor-friendly and modern retirement solution. With higher equity exposure, relaxed withdrawal norms, and smarter exit options, NPS today looks far more like a long-term wealth-building tool than a traditional pension product.
1. 100% Equity Allocation: A Big Boost for Growth
Earlier, equity exposure in NPS was capped at 75%, limiting growth potential for younger investors. Under the revised rules, subscribers can now allocate up to 100% of their corpus to equity.
Additionally:
• Up to 5% can be invested in gold, silver, and alternative assets
• NPS now resembles mutual funds, while still retaining retirement discipline
Why it matters:
For long-term investors with higher risk appetite, equity-driven growth can significantly enhance retirement wealth.
2. Mandatory Annuity Reduced from 40% to 20%
One of the biggest concerns with NPS was the compulsory annuitisation of 40% of the corpus at retirement. This has now been reduced to 20%.
This means:
• Up to 80% can be withdrawn as a lump sum
• Investors can still opt for higher annuity (40%, 60%, or even 100%) if they want stable lifelong income
Why it matters:
The reform restores choice, allowing investors to balance liquidity and income security based on personal needs.
3. Higher Limits for Full Lump-Sum Withdrawal
Earlier, 100% lump-sum withdrawal was allowed only if the total corpus was ₹5 lakh or less. This limit has now been raised to ₹8 lakh.
Also introduced:
• A new slab for corpus between ₹8–12 lakh
• Investors can withdraw up to ₹6 lakh as lump sum, with the balance through annuity or Systematic Unit Redemption (SUR)
Why it matters:
Small and mid-sized investors get greater flexibility without being forced into annuities prematurely.
4. Exit Rules Made More Practical
NPS was once considered a strict “lock-in till 60” product. That’s no longer the case.
Now:
• Subscribers can exit after 15 years in NPS
• Someone starting at 30 can technically exit at 45
Why it matters:
Liquidity has improved without diluting the long-term retirement objective.
5. More Partial Withdrawals & Added Flexibility
Partial withdrawal limits have been enhanced:
• Earlier: 3 withdrawals
• Now: 4 withdrawals, with a minimum gap of 4 years
Additionally, subscribers can now avail loans against their NPS corpus, providing financial support during emergencies.
6. Invest Longer: NPS Extended Till Age 85
Earlier, contributions were allowed only up to age 75. This limit has now been extended to 85 years.
Post-60 subscribers can:
• Make partial withdrawals
• Withdraw up to 25% of their contribution (subject to conditions)
• Maintain a minimum 3-year gap between withdrawals
Why it matters:
Retirees get more control over cash flows while allowing their investments to continue compounding.
7. Systematic Unit Redemption (SUR): Smarter Withdrawals
NPS now allows Systematic Unit Redemption (SUR) to avoid large one-time withdrawals.
Key features:
• Withdrawals spread over a minimum of 6 years
• Similar to a mutual fund SWP
• Remaining corpus stays invested and continues to grow
This promotes disciplined retirement income planning.
8. The Tax Grey Area to Watch
Earlier, 60% lump-sum withdrawal was fully tax-free. However, the tax treatment of the additional 20% (due to reduced annuity requirement) is still unclear.
Key points:
• Taxation decisions lie with the Ministry of Finance, not PFRDA
• Possible approaches include asset-based taxation, segregated taxation, or full exemption
Until clarity emerges, investors should plan withdrawals cautiously.
Final Thoughts: Is NPS Still Just a Pension Product?
Not anymore
With higher equity exposure, reduced annuity pressure, flexible exits, extended investment tenure, and systematic withdrawals, NPS has evolved into a powerful, low-cost retirement and wealth-building instrument.
For salaried individuals, self-employed professionals, and long-term investors seeking tax efficiency with discipline, the new NPS deserves a fresh look.