The Pension Fund Regulatory and Development Authority (PFRDA) has introduced an important change in the National Pension System (NPS) for private sector employees.
This update directly affects how much money you can withdraw at retirement and how much will be used to generate a monthly pension.
The new rule gives retirees more cash in hand, but it also slightly reduces the pension amount.
What Has Changed in NPS Rules?
Earlier, private sector employees could withdraw 60% of their NPS corpus as a lump sum at retirement, while 40% had to be used to buy an annuity for pension.
Under the new rule, non-government employees can now withdraw up to 80% of their total NPS savings.
Only 20% needs to be used to purchase an annuity, which provides a regular pension after retirement.
This means higher lump sum returns, but a lower monthly pension compared to the old system.
If You Start Investing ₹5,000 Per Month at Age 30
Let’s understand this with a simple example.
Assume you start investing ₹5,000 every month at the age of 30 and retire at 60.
Monthly investment: ₹5,000
Annual investment: ₹60,000
Investment period: 30 years
Total investment: ₹18 lakh
Expected annual return: 10%
By the time you turn 60, your total NPS corpus could grow to around ₹1.15 crore.
Under the new rule:
80% lump sum withdrawal: About ₹92 lakh
20% for annuity: About ₹23 lakh
If the annuity gives an average return of 6% per year, you could receive a monthly pension of ₹11,000 to ₹12,000 for life.
If You Start Investing at Age 40
Starting later means a shorter investment period, which affects both corpus and pension.
Investment period: 20 years
Total investment: ₹12 lakh
Estimated corpus at retirement: ₹48–50 lakh
At retirement:
Lump sum withdrawal (80%): ₹38–40 lakh
Annuity purchase (20%): ₹9–10 lakh
This annuity can provide a monthly pension of around ₹4,500 to ₹5,000.
What This Means for NPS Investors
The new NPS rule is beneficial for those who want a higher lump sum amount at retirement.
It gives more flexibility and better control over retirement funds.
However, since the pension amount becomes lower, investors should plan carefully and consider other income sources to maintain financial stability after retirement.
