PFRDA proposes major overhaul of pension rules: Early exit, flexible withdrawals, and modernised NPS framework

The Pension Fund Regulatory and Development Authority (PFRDA) has released an exposure draft proposing significant amendments to the framework governing pension funds and the National Pension System (NPS), signalling a key shift in how retirement savings will be managed and regulated in India. According to commentary on the draft, one of the most notable proposals is the introduction of an earlier exit option for NPS subscribers potentially after 15 years of participation rather than waiting until the standard retirement or age-60 juncture.

Under the draft’s recommendations, there is also a push to provide greater flexibility in withdrawals, making the pension system more adaptable to the evolving needs of contributors. For example, the proposal suggests that all-citizen and corporate NPS subscribers could allocate up to 20 % of their corpus toward an annuity, thereby enhancing the liquidity and utility of accumulated savings.

Another key aspect of the draft is the possibility of revising age-related norms for participation in NPS. For instance, the default NPS joining age may be raised, and special provisions could be introduced for those joining after age 60. These changes reflect PFRDA’s intent to make the pension architecture more inclusive and responsive to demographic and workforce shifts.

For stakeholders namely retirement fund managers, financial advisers, employers, or subscribers these proposed amendments could represent both opportunity and challenge. On one hand, increased flexibility and earlier exit options make NPS potentially more attractive to younger and mobile workers. On the other, the regulatory adjustment would require careful recalibration of investment strategies, fund governance, and subscriber counselling frameworks to align with the new norms.

At present, the draft remains notified for consultation, and final regulation will follow after stakeholder feedback and regulatory review. Until then, the existing rules remain in force, but interested parties should watch closely, as these amendments could reshape the entire pension-fund landscape in India in the coming years.