Can you exit NPS before 60? Here's what the rules say

In 2021, Ravi, a 29-year-old software professional, used the second Covid-induced lockdown to make thoughtful decisions about his finances. Among tax-saving instruments and investment options, the National Pension System (NPS) stood out. It not only offered an additional tax deduction under Section 80CCD(1B) but also provided a low-cost, diversified avenue for retirement savings.

Fast forward to today. Ravi is 34, and his financial landscape has changed. He has built a solid emergency fund, invests regularly in mutual funds and stocks. Given these developments, he wondered: “Do I really need to keep my NPS account as I have been disciplined and consistent with my investments?”

The question wasn’t rooted in dissatisfaction. NPS had served him well. But he was curious: If my priorities have shifted, can I exit?

Understanding NPS exit rules

Before deciding, Ravi had to understand the exit provisions under NPS, especially for those exiting before the age of 60 and who are non-government employees.

Here’s what he discovered:

• Five-year rule: Exiting from NPS is allowed only after completing five years of contribution, unless it’s due to retirement, death or critical illness.
• Withdrawal depends on corpus size:
  • If your corpus is Rs 2.5 lakh or less, you’re allowed to withdraw 100 per cent of the accumulated amount as a lump sum.
  • If your corpus exceeds Rs 2.5 lakh, you are required to use at least 80 per cent of it to buy an annuity (annuity provides regular income during retirement). Only the remaining 20 per cent can be withdrawn as a lump sum.

This approach ensures that NPS remains true to its core purpose—retirement income security—while also offering flexibility for smaller accumulations.

What did Ravi do?

He left his NPS account untouched. For starters, he had yet to complete his mandatory five years. Secondly, his corpus was over Rs 2.5 lakh. So, even next year, when the lock-in period is over, he will remain invested and allow the power of compounding to work further, especially given the low-cost structure and equity-debt blend NPS offers.

What should you do?

If you’re thinking of exiting NPS:

• Ensure you’ve completed five years in the system
• Check if your corpus is under Rs 2.5 lakh for full withdrawal
• If it’s higher than that, be ready to allocate 80 per cent towards an annuity.

But here’s the thing: Annuity income is most useful during retirement, when your regular salary stops and you truly need a stable income stream. If you’re still young or far from retiring, locking your money into an annuity right now may not be the best use of your investment.

Instead, it may make more sense to stay invested in NPS, let your money grow, and defer the annuity until it can actually serve its purpose of providing steady, lifelong income during retirement.

NPS: Your best bet for a stress-free retirement

In fact, just last year, Value Research CEO Dhirendra Kumar made a compelling case for why the NPS is a superior retirement plan for everyone. You can read his full argument yourself, but here’s a quick summary of what makes NPS stand out:

• Ultra‑low costs: NPS is among the cheapest retirement schemes available, ideal for long-term wealth building
• Diverse asset mix + equity exposure: Balances equity, bonds and government securities, offering inflation-beating growth without high volatility.
• Superior post-tax returns: Historically delivered higher after-tax corpus compared to equivalent mutual fund investments.
• Tax advantages beyond Rs 1.5 lakh: Offers an extra Rs 50,000 deduction.
• Flexible rebalancing: Allows up to four tax-free annual portfolio reallocations.
• Disciplined lock-in: Restricts exits until 60, helping avoid impulsive decisions and reinforcing long-term savings.

Sure, NPS has its glitches, but for those serious about building a strong retirement corpus, it’s one of the most reliable, tax-efficient and low-cost ways to get there. After all, retirement planning isn’t about speed; it’s about staying the course.

Also read: NPS investor? Don't make this mistake

This article was originally published on June 19, 2025.