NPS withdrawal options explained: Lump sum, annuity and phased withdrawal choices

National Pension System (NPS) is a long-term investment option, designed for individuals to build a steady retirement corpus. The scheme provides multiple withdrawal options upon retirement and before, which include lump sum withdrawals, annuity-based income, phased withdrawals and partial withdrawals under certain situations.

Subscribers must note that NPS has undergone major changes to its withdrawal rules after the Pension Fund Regulatory and Development Authority (PFRDA) revised the exit and withdrawal norms late last year. The new rules, effective in 2026, give individuals more flexibility in how and when they can withdraw their savings.

Withdrawal rules differ for government and corporate employees. While the exit age for public sector workers was extended from 75 to 85, allowing them to remain invested longer, while retaining the flexibility to exit earlier. For corporate subscribers, the vesting period has been reduced to 15 years or until age 60, whichever comes first.

Here is a detailed breakdown of how withdrawals under NPS work, along with the available options, to help you understand how your retirement savings can be accessed or turned into a reliable income stream.

Lump sum withdrawal

Government employees can withdraw up to 60% of their accumulated pension wealth (APW) at exit, while the remaining 40% must be used to buy an annuity.

Whereas, corporate employees can withdraw up to 80% of the APW as a lump sum and use at least 20% of the APW to buy an annuity. Earlier, they could only withdraw 60% of APW as a lump sum.

As per income tax rules, 60% of the proceeds from the scheme are entirely tax-free, whereas the remaining amount is taxed.

Annuity (Pension income)

Under the NPS scheme, a portion of the retirement corpus must be used to purchase an annuity, which converts your savings into a steady pension stream. This annuity provides regular income payouts, typically on a monthly, quarterly or yearly basis, depending on the option selected at the time of purchase.

The income received from the annuity is taxable as per your applicable income tax slab in the year of receipt.

Phased withdrawal (staggered lump sum)

Instead of withdrawing a 60% or 80% lump sum at once, a person can also have the option to withdraw it in instalments over time. Two options will allow you to do this — Systematic Lump sum Withdrawal (SLW) and Systematic Unit Redemption (SUR).

SLW is a facility that allows withdrawal of a fixed amount at regular intervals (at the time of exit). The system keeps paying you the fixed rupee amount, and units are sold accordingly to match that amount.

Alternatively, withdrawals can be done using the SUR system, where a fixed number of units is redeemed periodically. In this case, the payout amount varies with the prevailing Net Asset Value (NAV), while the remaining units remain invested.

If the APW is under ₹8 lakh, the subscriber can withdraw the entire amount in a lump sum upon normal exit. If the APW is between ₹8 lakh and ₹12 lakh, the person can withdraw up to ₹6 lakh as a lump sum and the remaining amount as SUR for at least 6 years or as an annuity. However, if the corpus is above ₹12 lakh, the general 80/20 rule applies.

Premature withdrawal

Government employees who exit prematurely must use 80% of their APW amount to buy an annuity, and the remaining can be withdrawn entirely or through SLW or SUR, based on an individual's needs.

The same rule applies to corporate employees as well. For them, up to 20% of the total pension corpus can be withdrawn as a lump sum. At least 80% of the corpus must be used to purchase an annuity that provides a regular pension.

Partial withdrawals

Under NPS, partial withdrawals are permitted after a minimum holding period of three years for specific purposes, such as education, marriage or medical emergencies.

These withdrawals are capped at 25% of the subscriber’s own contributions (excluding employer contributions and returns). Such withdrawals are tax-free, subject to the prescribed conditions, as per income tax rules.