The Pension Fund Regulatory and Development Authority (PFRDA) has announced an important change in the National Pension System (NPS) for private sector employees.
This update changes how much money you can withdraw at retirement and how much must be used to buy a pension.
The new rule gives retirees more cash in hand, but it also affects the monthly pension amount.
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What Has Changed in NPS Rules?
Earlier, private sector NPS subscribers could withdraw 60% of their total corpus 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 NPS corpus as a lump sum.
Only 20% needs to be invested in an annuity, which will generate a monthly pension.
This means higher one-time withdrawal, but a relatively lower pension amount.
Investing ₹5,000 Per Month: Starting at Age 30
Let’s understand this with a simple example.
Assume a private sector employee starts investing ₹5,000 per month at the age of 30.
Annual investment: ₹60,000
Investment period: 30 years
Total investment: ₹18 lakh
Average annual return: 10%
By the age of 60, the total NPS corpus becomes around ₹1.15 crore.
Under the new rules:
80% lump sum withdrawal: Around ₹92 lakh
20% annuity purchase: Around ₹23 lakh
If the annuity gives an average return of 6% per year, the retiree can expect a monthly pension of ₹11,000 to ₹12,000.
Investing ₹5,000 Per Month: Starting at Age 40
If someone starts investing later, at the age of 40, the numbers change.
Investment period: 20 years
Total investment: ₹12 lakh
Total corpus at 60: Around ₹48–50 lakh
Under the new rule:
Lump sum withdrawal: ₹38–40 lakh
Annuity amount: ₹9–10 lakh
With a 6% annuity return, this would result in a monthly pension of about ₹4,500 to ₹5,000.
What This Means for Investors
The new NPS rule is beneficial for those who want a larger lump sum at retirement.
However, it also means a lower monthly pension compared to the earlier system.
For private sector employees, this change makes early and consistent investing even more important to ensure both financial freedom and stable income after retirement.