Last Updated:December 19, 2025, 16:15 IST

In 2025, a sweeping set of reforms by the Pension Fund Regulatory and Development Authority (PFRDA) has been announced to make NPS more attractive, flexible, and investor-friendly.

The National Pension System (NPS) has been largely used for tax savings. In 2025, a sweeping set of reforms by the Pension Fund Regulatory and Development Authority (PFRDA) has been announced to make NPS more attractive, flexible, and investor-friendly.

Here’s a simple breakdown of what has changed.

Higher lump-sum withdrawals at retirement

One of the most significant changes is the higher cash withdrawal limit. Non-government subscribers with an NPS corpus of more than Rs 12 lakh can now withdraw up to 80% of their savings as a lump sum, with only 20% mandatorily allocated to an annuity. Earlier, 40% had to be annuitised, a provision that often reduced post-retirement returns.

New withdrawal slabs for smaller NPS corpus

PFRDA has introduced a new withdrawal framework based on corpus size, offering greater flexibility to investors with lower balances.

Subscribers with a corpus below Rs 8 lakh can withdraw 100% of the amount as a lump sum. Those with a corpus between Rs 8 lakh and Rs 12 lakh can choose between phased withdrawals using Systematic Unit Redemption (SUR), partial lump-sum withdrawal combined with annuity purchase, or higher lump-sum withdrawal depending on subscriber category.

Systematic Unit Redemption (SUR) introduced

A key structural reform is the introduction of Systematic Unit Redemption, which allows subscribers to withdraw their NPS corpus gradually over a minimum period of six years. This enables a steady post-retirement income stream without locking funds into an annuity.

Investment age limit extended to 85 years

Subscribers can now remain invested in NPS until 85 years of age, up from the earlier limit of 75. This benefits investors who want to delay withdrawals or continue compounding their retirement corpus beyond the traditional retirement age of 60.

More flexibility in partial withdrawals

Before turning 60, NPS subscribers can now make up to four partial withdrawals, compared with three earlier, with a minimum gap of four years. Withdrawals of up to 25% of own contributions are allowed for specified purposes such as education, marriage, home purchase and medical emergencies.

After 60, subscribers who continue investing can make partial withdrawals with a minimum gap of three years between transactions.

Multiple schemes under one NPS account

Non-government subscribers can now hold multiple schemes under a single PRAN, allowing them to diversify across fund managers and investment strategies without opening separate accounts.

100% equity option for long-term investors

From October 2025, private, corporate and self-employed subscribers can invest up to 100% in equities under the Multiple Scheme Framework, up from the earlier cap of 75%. This option is designed for younger investors with long time horizons who can tolerate higher volatility.

Switching between MSF schemes, however, is restricted for the first 15 years or until age 60.

NPS can now invest in gold, REITs and IPOs

NPS equity schemes are now permitted to invest in gold and silver ETFs, REITs, equity AIFs and IPOs. The combined exposure to these assets is capped at 5% of the equity allocation, offering diversification without excessive risk.

Scheme A discontinued: What subscribers must do

Subscribers invested in Scheme A, which focused on alternative assets such as infrastructure, must switch to Scheme C or Scheme E by December 25, 2025. The scheme is being phased out due to low participation and liquidity challenges.

Other investor-friendly changes

Several additional reforms have further improved NPS attractiveness. These include removal of the five-year lock-in for non-government subscribers, permission to pledge NPS corpus to obtain loans (up to 25% of own contributions), and enhanced tax benefits for NPS Vatsalya contributions under Section 80CCD(1B).

Clearer exit and family protection rules

Exit rules have also been streamlined. Subscribers who renounce Indian citizenship can withdraw their entire corpus. In the event of death, nominees or legal heirs receive 100% of the corpus if no annuity has been purchased. Interim relief provisions have also been introduced for cases where a subscriber is legally declared missing.

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Borrowing fell last month to its lowest November level for four years but was still higher than expected as figures for the year so far were pushed higher due to the Government’s U-turn on winter fuel payments.

Official figures showed borrowing stood at £11.7 billion last month, £1.9 billion less than in November last year and the lowest for that month since 2021 thanks to a sharp fall in debt interest payments.

But the figure was more than the £10.3 billion expected by most economists and the £8.6 billion forecast in March by the UK’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).

The OBR’s monthly forecasts from the budget on November 26 are not available until mid-January, according to the ONS.

Borrowing for the eight months of the financial year so far was £132.3 billion, £10 billion higher than the same period a year ago and £16.8 billion higher than the OBR forecast in March.

This was partly due to an extra £1.8 billion of spending on winter fuel payments after the Government U-turned on its previous decision to severely restrict payments through means testing, instead opting to give the payout to all pensioners except those earning above £35,000 a year.

This helped drive an upward revision to borrowing for the seven months to October by £3.9 billion.

ONS senior statistician Tom Davies said: “Despite an increase in spending, this month’s borrowing was the lowest November for four years.

“The main reason for the drop from last year was increased receipts from taxes and National Insurance contributions.”

November’s figure was pushed lower thanks to falling debt interest payments on borrowing, down by £200 million year-on-year to £3.4 billion and the lowest November level for six years.

Public sector net debt, including the Bank of England, reached £2.93 trillion at the end of November, which is around 95.6% of gross domestic product (GDP) and 0.3 percentage points more than a year ago, although remains at levels last seen in the early 1960s.

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said there was “very little Christmas cheer for the Chancellor” in the latest borrowing figures.

He added: “Ms Reeves has staked much fiscal credibility on chunky tax increases in the back end of the forecast period. But we think today’s figures further illustrate the shaky foundations of that gamble.

“Revenues continue to underperform, and the smorgasbord approach of tax increases relies on distortionary tax increases with uncertain yields.

“We also have serious doubts about the Government’s ability to follow through on the raft of spending cuts announced in the Budget.”

Chief Secretary to the Treasury James Murray said the debt interest payments underscored the need to bring borrowing down.

He said: “£1 in every £10 we spend goes on debt interest – money that could otherwise be invested in public services.

“That is why last month the Chancellor set out a Budget that delivers on our pledge to cut debt and borrowing.”

Martin Beck at WPI Strategy said “confidence remains the missing ingredient”.

“A clear and credible pro-growth strategy from the Government – and an end to the pervasive gloom surrounding the UK economy – may matter just as much for the public finances as the fine print of future tax and spending plans,” he said.

“How do I decide how much to save and invest when my income is just about enough?”This is one of those questions that sounds technical, but is actually very emotional.On paper, it’s simple: income comes in, expenses go out, and whatever is left is “savings. In real life, income comes in, rent, EMIs, school fees, petrol, Swiggy, Zomato, sale on Myntra, birthday gifts, one sudden expense… and at the end of the month, you look at your balance and say, “I’ll start investing from next month. Pakka.”Next month looks surprisingly similar.So let’s start with an honest admission: for most people, the problem is not which fund to choose. It’s how much they can realistically save when it feels like the money is just about enough.At Value Research, whenever we look at this, we don’t begin with a number like “you must save 30%”. We start with a different idea: savings are not what is left after spending. Savings are what you decide first; spending adjusts after that if you flip this order, the maths – and your behaviour – changes completely.A good rule of thumb for many middle-class households is to allocate 20–30% of their take-home income to savings and investments. However, I also know that for many people today, 30% sounds like a bad joke. So instead of fighting over the “ideal” number, let’s work with two simpler questions:

To answer the first question, you need to know where your money is actually going, not where you think it is going. For one or two months, track your expenses honestly – not for Instagram, for yourself. You don’t need an app; even a simple notebook or spreadsheet works.

Where does a typical salary go?

Once you see your own pie chart, three things usually stand out:

Your first “investment” might simply be plugging two or three leaks. Even if that frees up only ₹2,000–₹3,000 a month, that is your starting SIP.Now let’s look at how “small” that really is.

From spare change to serious money

When we run these numbers at Value Research in our retirement and goal calculators, the results are always the same: the gap between zero and small is far bigger than the gap between small and perfect.But what if your income truly is at the survival stage? There are people for whom even ₹2,000 is a luxury some months. If that’s your reality, you have two parallel jobs. One is to create a tiny habit – even ₹500 or ₹1,000 a month into a recurring deposit or a conservative fund. The absolute amount is less important than the mental switch from “I’ll save if anything is left” to “I will save something, and then I will live on the rest.”The second job is to make sure that as your income grows, your lifestyle doesn’t expand at the same speed. This is where a lot of middle-class Indians quietly sabotage themselves. Every salary increase automatically becomes a better phone, nicer meals out, upgraded gadgets, and bigger car loans. The percentage saved stays the same, or sometimes even falls.A very powerful habit – one we often build into plans at Value Research – is the “step-up”. Each year, when your salary goes up, you increase your SIPs and savings before you upgrade anything else.

Step up your SIP before you step up your lifestyle

In many examples we’ve run, the step-up strategy leads to a dramatically higher corpus at the end, without you ever feeling an acute “sacrifice” in any single year. You just avoid letting every pay hike leak out into lifestyle.Now, how do you decide your own number?Here’s a simple approach:

If that number feels tight, start a little lower and promise yourself one thing: every time your income goes up, your savings rate will go up faster than your spending.At Value Research, when we build long-term plans, we don’t assume people will suddenly start saving 40% from next month. We assume they will start somewhere realistic, and then we design step-ups. The rigour is in the process, not in some magical starting number.One last point. Many people postpone investing because they are embarrassed by how small their starting amount looks. Please don’t underestimate the psychological power of seeing a small, growing pile that you started and maintained. It changes how you think about yourself: from “I can’t save” to “I am someone who always saves something.” That identity is worth more than one extra dinner out.So how much should you save and invest when your income feels just about enough? The honest answer is: start with whatever you can without lying to yourself, protect that amount like you protect your rent, and then make sure it rises every time your income increases. The “right” number is not what a formula says; it’s the number you will actually stick to for the next 20 years.The perfect percentage can wait. The first rupee cannot.If you have any queries for Dhirendra Kumar you can drop us an email at: toi.business@timesinternet.in(Dhirendra Kumar is Founder and CEO of Value Research)