By IndiaHub 
One of the most consequential changes is the recalibration of the compulsory annuity purchase requirement, which is now fixed at a minimum of 20% of the accumulated pension wealth at the time of exit in specified scenarios.
What the 20% Corpus for Annuity Purchase Rule Provides?
For non-government subscribers whose total accumulated pension wealth exceeds the specified monetary thresholds, the regulations mandate that at least 20% of the pension wealth must be used to purchase an annuity, which provides periodic pension income. The rest (up to 80%) may be withdrawn as a lump sum, or through structured withdrawal mechanisms such as systematic unit withdrawal.
This requirement applies at normal exit points, such as attaining 60 years of age or completing the minimum subscription period, and also in cases of exit between ages 60 and 85.
Also Read: NPS changes: 10 new rules you must know about NPS accumulation, growth and withdrawal
How the compulsory threshold would be determined
The compulsory annuity rule is not absolute and is linked to corpus-based thresholds:
- If the accumulated pension wealth (APW) is up to Rs 8 lakh subscribers are allowed to withdraw 100% as lump sum. They will also get the option to utilise at least 20% of APW for annuity purchase and withdraw 80% as lump sum.
- However, if the retirement corpus or the APW is above Rs 8 lakh but below Rs 12 lakh, the subscriber is permitted to withdraw Rs 6 lakh as lumpsum and utilise the remaining part of the retirement corpus either to buy an annuity plan or go for systematic unit redemption (SUR) for at least six years, which is a kind of staggered withdrawal directly from the NPS corpus.
- When the accumulated retirement corpus exceeds Rs 12 lakh, it is mandatory for subscribers to mandatorily buy annuity from 20% of the accumulated corpus while they can withdraw up to 80% of the retirement corpus or APW as lump sum.
Non-Government Sector — Utilisation of Accumulated Pension Wealth (APW)
| Exit scenario / event | Accumulated pension wealth (APW) at exit | Lump sum | Systematic unit redemption (at least 6 years) | Annuity |
|---|---|---|---|---|
| Upon ≥15 years of subscription, or attaining 60 years, or on superannuation (Reg. 4(1)(a)) | ≤ ₹8 lakh | 100% | Not applicable | Not applicable |
| > ₹8 lakh ≤ ₹12 lakh | Up to ₹6 lakh OR up to 80% | Balance of APW remaining after lump sum | Not applicable OR balance of APW remaining after lump sum | |
| > ₹12 lakh | Up to 80% | Not applicable | At least 20% | |
| Upon physical incapacitation (Reg. 4(1)(d)) | ≤ ₹8 lakh | 100% | Not applicable | Not applicable |
| > ₹8 lakh ≤ ₹12 lakh | Up to ₹6 lakh OR up to 80% | Balance of APW remaining after lump sum | Not applicable OR balance of APW remaining after lump sum | |
| > ₹12 lakh | Up to 80% | Not applicable | At least 20% | |
| Upon voluntary exit (Reg. 4(1)(b)) | ≤ ₹5 lakh | 100% | Not applicable | Not applicable |
| > ₹5 lakh | Up to 20% | Not applicable | At least 80% | |
| Upon death (Reg. 4(1)(c)) | Any APW | Up to 100% | Not applicable | Up to 100% |
| Exit by individuals who joined NPS on or after 60 years (Reg. 4(1)(e)) | ≤ ₹12 lakh | 100% | Not applicable | Not applicable |
| > ₹12 lakh | Up to 80% | Not applicable | At least 20% | |
| Upon death of individuals who joined on or after 60 years (Reg. 4(1)(e)) | Any APW | Up to 100% | Not applicable | Up to 100% |
Prior to the 2025 amendment, non-government NPS subscribers typically needed to purchase annuity with 40% of their pension at the time of exit. By halving the mandatory annuity requirement from 40% to 20%, the amended regulations enhance the flexibility of NPS subscribers. Allowing up to 80% withdrawal will allow non-government subscribers to decide for themselves how they want to utilise their corpus.