Thinking of closing your National Pension System (NPS) account before retirement? While NPS is mainly designed as a long-term retirement savings scheme, the rules for early exit have become more flexible in recent years.
But before taking a decision, it’s important to understand one key point — not all of your money may be available for withdrawal.
In many cases, a large portion still has to be invested in an annuity plan that gives regular pension income.
Here’s a simple breakdown of the latest NPS premature exit rules.
Who Can Exit NPS Before Age 60?
Premature exit from NPS is allowed only for subscribers who joined the scheme between the ages of 18 and 60 and have completed at least 15 years in the system.
These rules apply only before the age of 60 or before superannuation, whichever comes earlier.
However, people who joined NPS after turning 60 are not covered under these premature exit rules.
Rules for Government Employees
For government employees, premature exit may happen due to resignation, voluntary retirement, dismissal, or removal from service.
The withdrawal rules depend on the total pension corpus accumulated in the account.
If the total corpus is up to Rs 5 lakh, the entire amount can be withdrawn.
Subscribers can take it as a lump sum or through phased withdrawal options like Systematic Lump Sum Withdrawal (SLW) or Systematic Unit Redemption (SUR).
But if the corpus is more than Rs 5 lakh, the rules become stricter.
At least 80% of the total amount must be used to buy an annuity plan.
The remaining amount can be withdrawn as a lump sum or in installments.
Rules for Private Sector and All Citizen NPS Subscribers
For subscribers under the All Citizen Model and Corporate Sector Model, the rules are slightly different.
If the total NPS corpus is more than Rs 5 lakh:
Only up to 20% can be withdrawn as a lump sum.
At least 80% must go into an annuity plan for pension income.
However, there is relief for smaller accounts.
Earlier, full withdrawal without annuity was allowed only if the corpus was up to Rs 2.5 lakh.
Now, the limit has been increased to Rs 5 lakh.
This means:
If your corpus is up to Rs 5 lakh, you can withdraw the full amount.
You can also choose phased withdrawal options like SLW or SUR instead of taking the money at once.
The Tier-I and Tier-II Difference Many Investors Ignore
A lot of investors confuse Tier-I and Tier-II NPS accounts, but the difference is important.
Tier-I Account
Tier-I is the main retirement account under NPS.
It comes with tax benefits.
The account remains locked till the age of 60 in most cases.
Investors can claim tax deductions up to Rs 1.5 lakh under Section 80CCD(1), along with an additional Rs 50,000 under Section 80CCD(1B).
This account is meant for long-term retirement planning.
Tier-II Account
Tier-II works more like a flexible savings account.
There is no lock-in period.
Money can be withdrawn anytime.
It does not offer tax benefits for most investors.
Because of its flexibility, many investors use Tier-II for short-term cash needs without disturbing their Tier-I retirement savings.
Should You Exit NPS Early?
Recent changes by the Pension Fund Regulatory and Development Authority (PFRDA) have made NPS withdrawals more flexible, especially for non-government subscribers.
At the same time, retirement today looks very different from the past.
Many people retiring early continue consulting, freelancing, mentoring startups, or managing investments.
Because of this, experts believe NPS should be seen as one part of a larger retirement strategy rather than the only retirement tool.
Balram Bhagat, Managing Partner – Products and Pension at Wealth Company Asset Management, says investors can continue using NPS even after early retirement by making fresh contributions and using systematic withdrawal options for regular income.
One major advantage of NPS remains its low expense ratio, which can help improve long-term returns and maintain retirement savings over time.
