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				<title>NPS reduces annuity requirement to 20% &#8211; should you open an NPS account?</title>
				<link>https://freefincal.com/nps-reduces-annuity-requirement-to-20-should-you-open-an-nps-account/</link>
				<pubDate>Thu, 18 Dec 2025 00:30:14 +0000</pubDate>
								<dc:creator><![CDATA[M. Pattabiraman]]></dc:creator>				<guid isPermaLink="false">https://freefincal.com/?p=328803</guid>
					<description><![CDATA[In a major reform, on 12th Dec 2025, the NPS regulator, PFRDA, has reduced the...]]></description>

				<content:encoded><![CDATA[<figure><img src="https://freefincal.com/wp-content/uploads/2025/12/National-Pension-Scheme.avif" class="type:primaryImage" /></figure><p>In a major reform, <a href="https://www.pfrda.org.in/documents/33652/184762/Gazette+PFRDA+Exit+and+Withdrawals+under+the+NPS+Amendment+Regulations+2025.pdf" target="_blank" rel="noopener">on 12th Dec 2025, the NPS regulator, PFRDA,</a> has reduced the mandatory annuity requirement for non-government subscribers from 40% to 20%. This is most welcome news for existing subscribers. But what about those who wish to open an NPS account? Should this reform motivate them to do so?</p>
<p><strong>First, let us consider the rules for existing subscribers</strong></p>
<p>The new rule states that &#8220;Upon ≥ 15 years of subscription, or on attaining 60 years, or<br />
on superannuation as per regulation 4(1)(a) (or) Upon physical incapacitation as per regulation 4(1)(d):, if the accumulated corpus is greater than Rs. 12 lakhs, up to 80% of the corpus can be withdrawn (see options below) and 20% annuitised.</p>
<p>I expect the Fin Min to soon raise the current tax-free withdrawal limit from 60% to 80% to align with this change.</p>
<p>An NPS subscriber can now remain in the scheme until 85 years of age! The annuity or lump-sum withdrawal can be deferred until age 85! The lump sum can be withdrawn systematically, viz., monthly, quarterly, half-yearly, or annually, for a period until age 85* (or earlier).</p>
<p>* This is my understanding and not explicitly stated in the circular. The limit was 75 earlier. So it is reasonable to assume it should be changed to 85.  It makes little sense for systematic withdrawal to begin at age 85!</p>
<p>These are excellent reforms. Although many subscribers may need to buy an annuity for more than the mandatory 20%, choice is important.</p>
<p>One needs to stay invested in the NPS for only 15 years for the 80% withdrawal to kick in. I am not sure if this 15-year limit was introduced earlier or only now. In any case, it is excellent news for corporate employees who are unlikely to work until 60.</p>
<p><strong>So, should you now open an NPS account based on these reforms?</strong></p>
<p>First, let us make it clear that one does not need the NPS for retirement. With the introduction of the new tax regime, the only compelling reason for choosing the NPS is the employer contribution, which is not taxable*.</p>
<p>* This is not an extra benefit. The entire contribution will be added to your taxable income and then deducted from it. You may get some marginally higher benefits if your employer structures your salary differently, but it&#8217;s not a game-changer.</p>
<p>In 2025/2026, most employers are happy to contribute to NPS (as they also receive tax benefits). So even if you were to switch employers, availing NPS in the new place is now easier and switching accounts should be smoother than EPF.</p>
<p>So all good? The price you have to pay is the 15-year lock-in. EPF, inspite of all its faults, is significantly more liquid than the NPS.</p>
<p>Most people do not appreciate liquidity as much as they do returns and taxes. We never know when we need a huge chunk of money. Yes, I am aware of partial withdrawal options, but their definitions are rather narrow IMO.</p>
<p>It is silly to claim the lock-in builds discipline. A product cannot do that. We need money at our disposal at all times to handle life&#8217;s vagaries.</p>
<p>If you would like to start something on your own after a few years of employment, then avoid NPS if you can. You don&#8217;t need it.</p>
<p>If you are sure you will remain salaried for 15 years, you can choose the NPS, but be sure to invest significantly elsewhere to offset the liquidity loss. This is essential. You cannot lock up all your net worth in NPS.</p>
<p>Some argue, &#8220;the rules will change for the better in future&#8221;. Sure, they might. But we should decide based on the rules today and invest in the hope that the rules will change tomorrow. We have to respect our money more than that!</p>
<p>I would suggest using NPS as a debt mutual fund and investing separately in simple equity index mutual funds (NPS is an actively managed fund with an obscure investment strategy).</p>
<p>In any case, do not go overboard with equity (in NPS or in MFs).  An asset allocation of 50%-60% equity and the rest in fixed income is good enough.</p>
<p>The variable asset allocation options in NPS (auto-choice) are good, but they make sense only if NPS is your only investment (which is a huge liquidity risk). So I would prefer to choose a 100% fixed-income option in NPS.</p>
<p>The post <a href="https://freefincal.com/nps-reduces-annuity-requirement-to-20-should-you-open-an-nps-account/">NPS reduces annuity requirement to 20% &#8211; should you open an NPS account?</a> appeared first on <a href="https://freefincal.com">freefincal</a>.</p>
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		<post-id xmlns="com-wordpress:feed-additions:1">328803</post-id>			</item>