PFRDA proposes big NPS changes: SWP-style payouts, 80% tax-free withdrawal, and loans against your corpus. Learn all the new rules in detail.
On 16 September 2025, the Pension Fund Regulatory and Development Authority (PFRDA) released an Exposure Draft suggesting major amendments to the National Pension System (NPS) Exit and Withdrawal Regulations, 2015.
These proposals focus on greater flexibility, better liquidity, and smarter retirement planning.
Below is a detailed, step-by-step explanation of all ten key changes, in the order of their impact: SUR first, 20% annuity next, then the new NPS loan facility as point 3, followed by the remaining seven points.
Proposed PFRDA NPS Exit Changes 2025: SWP & 80% Tax-Free
The list of changes is big, and I can’t share all of them here. However, I picked a few who I feel are big changes. You can refer to the complete proposal HERE.
1. Systematic Unit Redemption (SUR) – Regular Income Without Annuity
- What It Means
- SUR is similar to a mutual fund’s Systematic Withdrawal Plan (SWP).
- You can withdraw a fixed amount monthly, quarterly, or annually for at least five years, while the rest of your corpus stays invested.
- Why It Matters
- Predictable Retirement Cash Flow: Get steady income instead of a one-time lump sum.
- Continued Growth: Remaining funds keep earning market returns.
- Nominee Advantage: Heirs can also opt for SUR instead of a lump sum or annuity.
This transforms NPS from a purely accumulation product into a self-managed pension.
2. Lower Mandatory Annuity – Only 20% Required
- Earlier Rule: 40% of the NPS corpus had to be used for an annuity at exit.
- Proposed Rule: Only 20% needs to be used for an annuity.
- Impact on Investors
- 80% Liquidity: Withdraw or use SUR for the rest of the corpus.
- Better Returns: Avoid locking large amounts in low-yield annuities.
- Customised Planning: You can build a diversified income strategy.
This is a game-changer for retirees who dislike rigid annuity products.
3. NPS Loan Facility – Use Your NPS as Collateral
- How It Works
- You can pledge your NPS account to a regulated financial institution for a loan.
- The lender marks a lien (charge) on your NPS units as security.
- Your investments continue to earn market returns during the lien period.
- Why It’s Important
- Emergency Funding Without Breakage: Borrow without redeeming units.
- Maintain Growth: Your corpus keeps compounding.
- Easy Release: Once the loan is repaid, the lien is removed.
This provides an emergency credit line without disturbing your retirement plan.
4. Stay Invested Till Age 85 – Longer Growth & Tax Deferral
- Earlier Limit: You could defer exit until 75.
- New Limit: Defer until age 85.
- Benefits
- More Compounding: Ten extra years of market-linked growth.
- Tax Deferral: Taxes apply only when you withdraw.
- Longevity Planning: Perfect for those working or earning beyond 60.
5. Higher Full Withdrawal Threshold – Up to ?12 Lakh
- Change Proposed: 100% lump sum withdrawal without buying an annuity allowed if corpus is up to ?12 lakh (earlier ?5 lakh).
- Why It Helps
- Ideal for investors with small-to-mid corpus sizes.
- Offers full control over funds after retirement.
6. Easier Partial Withdrawals – Before & After 60
- Before 60:
- Up to six partial withdrawals allowed (earlier only three).
- After 60 (while continuing NPS):
- Up to three withdrawals per financial year permitted.
- Expanded Purposes:
- Higher education or marriage of self.
- Starting a business or skill development.
- Margin money for a house or vehicle loan.
- Renovating property damaged by natural disasters.
This gives investors freedom to access funds for genuine needs.
7. Improved Premature Exit Rules
- If Exiting Before 60:
- Full withdrawal limit raised to ?4 lakh (earlier ?2.5 lakh).
- Above this, you still need to annuitize 80% of the corpus.
- Benefit:
- Greater flexibility for those who stop contributing early or change plans.
8. Flexible Death Benefits
- Nominee Choices:
- SUR payouts,
- Lump sum, or
- Combination of both for at least five years.
- If No Nominee Registered:
- Employer’s nominee records for other benefits will be accepted to simplify the process.
This ensures faster and easier claim settlements.
9. New Provisions for NRIs and Minors
- Renunciation of Citizenship:
- NRIs who give up Indian citizenship can withdraw the entire corpus without buying an annuity.
- NPS Vatsalya (for Minors):
- Allows partial withdrawals for education, illness, or disability.
- Offers flexible exit when the child turns 18.
These updates support global mobility and child-specific needs.
10. Relief if a Subscriber is Missing
- Immediate Support for Nominees:
- Can receive 20% of the corpus as interim relief after filing a police FIR and report.
- Final Settlement:
- Balance is paid after a court declaration or reversed if the subscriber returns.
This gives financial relief to families during uncertainty.
Key Takeaways for NPS Investors
- Plan with SUR: Create a monthly or quarterly income stream while keeping funds invested.
- Rework Retirement Strategy: Only 20% annuity is mandatory—allocate more to growth investments.
- Emergency Preparedness: The new loan facility provides credit without disturbing your corpus.
- Defer & Grow: Use the age-85 option for extra compounding and tax efficiency.
- Update Nominations: Ensure employer and NPS nominee details match to avoid claim delays.
Final Word
The 2025 PFRDA NPS exit reforms are the most investor-friendly changes in years:
- SUR brings a self-managed pension. This is a big game changer as you no longer need to opt for an annuity, or even if someone withdraws the lump sum (earlier 60% and now 80%), if they don’t know how to manage this lump sum, then this may turn into a disaster for retirees. However, we have to look for taxation of this SUR feature.
- 20% annuity ensures higher liquidity, and
- Loan facility opens emergency credit access— This brings in more flexibility for emergency handling
all while retaining the tax and growth benefits of NPS.
These proposed changes have the potential to transform retirement planning in India, so it’s a good time to review your NPS strategy and plan ahead to take full advantage of these new provisions.
However, a few concerns remain:
- Debt Portfolio Flexibility: Currently, the NPS debt portfolio is single and uniform for all subscribers, regardless of age or retirement horizon. This means:
- A 30-year-old, with 25–30 years left until retirement, has the same debt allocation as someone just a few years away from retiring.
- This one-size-fits-all approach can increase risk for younger investors who could afford more long-term bonds or for near-retirees who may prefer short-term, lower-risk debt. Ideally, subscribers should have the choice to select long-term or short-term bonds based on their risk appetite and liquidity needs.
- Tax Benefits Under the New Regime: In the new tax regime, contributions to NPS (self-contributions) no longer provide tax deductions, which reduces one of the key incentives for investing in NPS.
- Passive Fund/Index Strategy: Currently, NPS equity and debt portfolios are actively managed. It raises the question: Why not allow low-cost index funds or passive strategies?
- This could reduce management costs, improve transparency, and potentially enhance long-term returns for subscribers.
In summary, while these proposals bring greater flexibility, SWP-style payouts, and higher tax-free withdrawal limits, there are still structural issues in the NPS that PFRDA could consider addressing to make it even more investor-friendly.