The Pension Fund Regulatory and Development Authority (PFRDA) has notified key changes to NPS exit and withdrawal rules, bringing meaningful relief for central and state government employees covered under the National Pension System (NPS).
The changes, notified on December 12, 2025, simplify withdrawal rules, raise full-withdrawal limits for smaller corpuses and offer more flexibility at retirement.
Here’s a detailed explanation of what exactly has changed for government employees under the Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) Amendment Regulations, 2025.
Full NPS withdrawal now allowed up to Rs 8 lakh
The most important change for government employees is the higher full-withdrawal limit. Earlier, a government employee could withdraw the entire NPS corpus only if it was up to Rs 5 lakh at the time of retirement. Under the new rules, this limit has been increased to Rs 8 lakh. This means if a government employee retires with an NPS corpus of Rs 8 lakh or less, the entire amount can now be withdrawn, with no need to purchase an annuity.
For many employees at lower and middle pay levels, this removes a major concern at retirement.
New withdrawal structure for Rs 8–12 lakh corpus
A new middle slab has been introduced for employees whose NPS corpus falls between Rs 8 lakh and Rs 12 lakh. In such cases, up to Rs 6 lakh can be withdrawn as a lump sum, and the remaining amount must be used through annuity or systematic withdrawal options. Earlier, employees in this range had fewer flexible options. The new slab-based structure makes exits more balanced and predictable.
Mandatory annuity still applies above threshold
For government employees with a higher NPS corpus, the rules continue to require mandatory annuity purchase. In most retirement cases, at least 40% of the NPS corpus must be used to buy an annuity, and the remaining 60% can be withdrawn as a lump sum or in a phased manner
While the annuity requirement has not been reduced for government subscribers, the higher full-withdrawal threshold ensures that employees with smaller corpuses are no longer forced into annuity purchases.
Option to defer NPS exit up to 85 years
Government employees now have a clearly defined option to defer their NPS exit. They can choose to defer lump sum withdrawal and annuity purchase and remain invested in NPS up to the age of 85. This option is useful for retirees who do not immediately need the money or want to continue earning market-linked returns.
Exit rules apply to each individual NPS account
The amended rules clarify that each individual pension account will be treated separately for exit and withdrawal.
This is relevant for government employees who may have shifted roles, changed cadres or hold more than one NPS account due to administrative reasons. Each account will now be settled independently as per the rules.
Clear rules for resignation, removal and premature exit
The notification also lays down clearer exit rules for cases such as resignation, removal or dismissal from service, and premature retirement due to disability or health reasons.
In such cases, a higher annuity requirement (generally 80%) continues to apply unless the corpus is below the specified threshold. This ensures pension continuity while still allowing limited withdrawals where permitted.
What happens if a government NPS subscriber dies before exit
In case of death before retirement, annuity requirements apply depending on the corpus size. If the corpus is small, full withdrawal is allowed for nominees. For larger corpuses, a portion may be used to purchase annuity for eligible family members.
The rules also lay down a default annuity structure to ensure income support for the spouse and dependent family members.
Interim relief for families of missing employees
For the first time, the rules clearly address cases where a government employee is missing and presumed dead.
In such cases 20% of the NPS corpus can be released as interim relief to the family and the remaining amount is settled after legal declaration, as per prescribed norms. This provides immediate financial support to families during prolonged uncertainty.
Partial withdrawals remain available during service
Government employees can continue to make partial withdrawals from NPS during service:
Up to 25% of self-contribution
Up to four times during the tenure
Subject to prescribed conditions and minimum gap rules
These withdrawals help meet important life needs without exiting the scheme.
Loans against NPS now formally allowed
The amended rules formally allow government employees to take loans from regulated financial institutions and mark a lien or charge on their NPS account for such loans. This change gives NPS recognition as a financial asset, not just a retirement product.
Summing up…
The 2025 NPS rule changes do not remove annuity requirements for all government employees, but they significantly ease the burden for those with smaller retirement corpuses. The higher Rs 8 lakh full-withdrawal limit, new slab structure and clearer deferment options make NPS exits more predictable and humane.