NPS annuity withdrawal rules relaxed for critical illness cases

Earlier, under a circular issued in October 2024, annuity surrender was largely prohibited except during the free-look cancellation period. The objective was to ensure long-term retirement income security for subscribers.

Under the revised rules, surrender of annuity policies will now be permitted in two situations: critical illness of the annuitant or their family members, subject to evaluation by the Annuity Service Provider (ASP), and for policies issued before October 24, 2024, which explicitly contain a surrender clause in the contract.

The regulator clarified that the relaxation is limited and will operate under strict safeguards. It added that the decision has been taken “to protect the interests of subscribers” while balancing long-term retirement security.

The process will require full transparency from service providers. As per the circular, “the ASP shall communicate the final amount transferable upon surrender, providing a clear bifurcation of all applicable charges and tax in writing to the annuitant.”

Further, surrender will only be processed after receiving “the annuitant’s explicit written consent,” and the final amount will be credited directly to the subscriber’s bank account. All cases will also be reported to the authority in monthly compliance reports.

The move is expected to bring relief in genuine hardship cases while maintaining regulatory oversight to prevent misuse of annuity withdrawals under the NPS framework.