National Pension System Reforms, 2025

• The Pension Fund Regulatory and Development Authority (PFRDA) notified the NPS (Exits and Withdrawals) Amendment Regulations, 2025, introducing far-reaching reforms in India’s contributory pension framework.
• Rationale: India’s pension architecture faces challenges of longevity risk, informalisation of labour, and low post-retirement income security.
  • NPS, a defined contribution scheme, required reforms to make it more attractive to non-government employees, especially private-sector and self-employed workers.

About National Pension System (NPS)

• It was introduced in 2004 by the Government of India and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
• NPS is mandatory for Central Government employees who joined service on or after 1 January 2004 and has been adopted by most State Governments.
• It is also open on a voluntary basis to all Indian citizens (resident, NRI, OCI) in the 18-70 years age.
• Employers may adopt NPS voluntarily as a retirement benefit scheme for their employees.

Key Reforms Introduced in NPS 2025

• Extended Age Limit: Subscribers can now remain invested in NPS up to 85 years, compared to the earlier cap of 75 years, reflecting rising life expectancy and delayed retirement trends.
• Lower Annuity Norms: Mandatory annuity purchase for non-government subscribers reduced to 20% of accumulated pension wealth, enhancing post-retirement liquidity and financial autonomy.
• Lump-sum Withdrawal: Non-government subscribers with a corpus exceeding ₹12 lakh can withdraw up to 80% as a lump sum at exit (earlier 60%), while government subscribers continue with the 60:40 lump-sum-annuity structure.
• Full Withdrawal Threshold: Subscribers with a corpus of up to ₹8 lakh are permitted a 100% lump-sum withdrawal, simplifying exits for small savers.
• New Corpus Slab: (₹8–12 lakh ), a graded exit framework introduced, allowing a mix of lump-sum withdrawal (up to ₹6 lakh), Systematic Unit Redemption (SUR), or annuity purchase, enabling customised retirement planning.
• Systematic Redemption Option: Introduction of Systematic Unit Redemption (SUR) as a phased withdrawal mechanism over a minimum of six years, reducing longevity and reinvestment risks.
• Pre-Retirement Access: Partial withdrawals before 60 years increased from three to four, with a mandatory four-year gap, improving liquidity without undermining retirement savings.
• Post-60 Withdrawals: Subscribers continuing beyond 60 years may withdraw up to 25% of own contributions, subject to a three-year interval between withdrawals.
• Citizenship-linked Exit: Provision for complete withdrawal of accumulated pension wealth upon renunciation of Indian citizenship.
• Missing Subscribers: Nominees or legal heirs entitled to 20% interim relief, with the remaining corpus released upon legal presumption of death under the Bharatiya Sakshya Adhiniyam, 2023.
• Account-Centric Approach: Shift from “Permanent Retirement Account” to individual pension account, improving clarity, ownership, and treatment in cases of multiple NPS accounts.