Corporate NPS and MSF schemes: why a 15-year vesting period doesn't free salaried subscribers, and how multiple accounts under one PRAN exit
PFRDA's March 2026 FAQ says Corporate NPS subscribers vest only at superannuation, even in a 15-year MSF scheme, and each account under one PRAN exits separately. Here is the drawdown maths.
Key points
- PFRDA's March 2026 FAQ says a Corporate Sector NPS subscriber can take normal exit only at superannuation or retirement, even from an MSF scheme with a 15-year vesting period.
- Leaving early is a premature exit: above Rs 5 lakh of pension wealth, at most 20% comes as a lump sum and at least 80% buys an annuity, so Rs 9 lakh yields Rs 1.8 lakh in cash.
- Each scheme under one PRAN is a separate account that exits on its own balance, so subscribers holding two schemes should check the options for each with their Point of Presence.
Photo: Dietmar Rabich / Wikimedia Commons, CC BY-SA 4.0 (cropped). Representational image.
A salaried subscriber who picks a pension scheme with a 15-year vesting period under NPS can be forgiven for expecting a normal exit in year 15. The Pension Fund Regulatory and Development Authority (PFRDA) says otherwise. In its "FAQs - Exits & Withdrawals from NPS for Corporate Sector", updated in March 2026, the regulator answers the question directly at Q6: no, a Corporate Sector subscriber cannot opt for normal exit on completing 15 years, because normal exit is linked to the age of superannuation or retirement.
That single answer changes the arithmetic of any early-exit plan. A normal exit on accumulated pension wealth (APW) above Rs 12 lakh allows a lump sum of up to 80%, while a premature exit on APW above Rs 5 lakh caps the lump sum at 20% and sends at least 80% into an annuity. This guide sets out the rules for common schemes and Multiple Scheme Framework (MSF) schemes, how two accounts under one PRAN exit separately, what the tax law says about each payout, and a worked drawdown using PFRDA's own thresholds. You can model your own figures in the NPS calculator.
The Scheme Explained
The PFRDA FAQ rests on the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, as amended, which the document calls the "Exit Regulations". The 2025 amendment, notified on 19 December 2025, set the current non-government thresholds used throughout this article. Before the numbers, four definitions from the FAQ (Q2 to Q5) matter.
Common scheme (Q2). A scheme offered by a pension fund under Section 20 of the PFRDA Act, 2013, other than an MSF scheme, applicable to Government and non-Government subscribers as the case may be.
Multiple Scheme Framework (Q3). A framework under the same Section 20 of the PFRDA Act, 2013, under which pension funds design schemes that PFRDA approves for non-Government subscribers only.
Same exit rules (Q4). The FAQ answers "No" to whether exit and withdrawal provisions differ between the two: they "apply uniformly" to common and MSF schemes.
Vesting period (Q5). The minimum subscription period needed to qualify for normal exit. For the Corporate Sector, it runs "till the age of superannuation or retirement", for both common and MSF schemes.
Put Q5 and Q6 together and the 15-year feature of an MSF scheme does not shorten anything for an employee enrolled through an employer. The vesting test for a Corporate Sector account is the retirement age under that employment, not a number of years in the scheme. If the employer's retirement age is 60, a subscriber who joined at 30 and leaves at 45 (15 years in) is making a premature exit.
What normal exit allows
For a superannuation or retirement exit, PFRDA's Q16 table sorts the options by APW at exit. The figures below match the npsExit non-government values in Oquilia's rate configuration, last updated 19 December 2025.
| APW at normal exit | Lump sum (one go, SLW or SUR) | Systematic Unit Redemption | Annuity |
|---|---|---|---|
| Up to Rs 8 lakh | 100%, or maximum 80% | - | Nil, or minimum 20% |
| Above Rs 8 lakh, up to Rs 12 lakh | Maximum Rs 6 lakh | Balance, for minimum 6 years | - |
| Above Rs 8 lakh, up to Rs 12 lakh | Maximum Rs 6 lakh | - | Balance |
| Above Rs 8 lakh, up to Rs 12 lakh | Maximum 80% | - | Minimum 20% |
| Above Rs 12 lakh | Maximum 80% | - | Minimum 20% |
Q17 adds that the whole APW, of any size, may be used to buy an annuity instead. Q15 makes exit at retirement optional: the subscriber may continue up to age 85 under the All Citizen Model, or defer either the lump sum or the annuity (not both, per Q29) up to age 85.
What premature exit allows
Q34 confirms a subscriber may leave before superannuation, "in accordance with the terms and conditions applicable to such subscriber by virtue of employment". The Q35 table is much tighter.
| APW at premature exit | Lump sum (one go, SLW or SUR) | Annuity |
|---|---|---|
| Up to Rs 5 lakh | 100%, or maximum 20% | Nil, or minimum 80% |
| Above Rs 5 lakh | Maximum 20% | Minimum 80% |
Two further limits apply. Deferment is not allowed on a premature exit (Q38), so the annuity is bought at exit. And under Q82 the annuity "starts immediately" once the subscriber meets the annuity service provider's minimum purchase age, which the FAQ illustrates as 30, 35 or 38 depending on the provider and plan; there is no wait for retirement age. The rate configuration records the premature-exit lock-in as 0 years since the 2025 amendment.
One PRAN, several accounts
Q7 is the second half of this story. Under NPS, "each pension scheme is maintained as a separate individual pension account under the subscriber's PRAN". When a subscriber holds more than one, "the exit or closure of each such account is processed independently", and the Exit Regulations "are applied separately to each individual pension account". PFRDA's own example is one MSF account and one common-scheme account: two accounts, two exits, the rules applied to each on its own APW.
What is changing
According to PFRDA circular PFRDA/2026/48/REG-PF/10 dated 28 August 2026 on a standardised scheme classification framework, the distinction between common and MSF schemes is being removed going forward. Since Q4 already applies one set of exit rules to both, the practical points in this article (vesting at superannuation for the Corporate Sector, and separate treatment of each account under a PRAN) do not depend on the labels. Check your scheme's current classification with your Point of Presence (POP) before you file an exit request.
Tax on Withdrawal
The FAQ's answer on tax is one line long. Q92 says the tax benefits on exit are "as per the extant Income Tax Act, 1961". It gives no rates, so the figures below come from Oquilia's rate configuration rather than from the FAQ.
Lump sum on closure. Section 10(12A) of the Income-tax Act exempts the payment received on closure of the account or on opting out "to the extent it does not exceed sixty per cent of the total amount payable", a limit in place since 1 April 2020. PFRDA's 2025 amendment raised the non-government withdrawal ceiling to 80%, but PFRDA's regulations cannot change the Income-tax Act. So the two ceilings, 80% you may take and 60% that section 10(12A) covers, are different numbers. Oquilia has not found a Finance Act provision aligning them, so we do not state how the slice between 60% and 80% is taxed; confirm it with a tax adviser for your assessment year.
Partial withdrawal. Section 10(12B) exempts a partial withdrawal up to 25% of the subscriber's own contributions, which matches PFRDA's partial-withdrawal limit of 25% of own contributions.
Annuity income. Annuity paid by the provider is income of the year in which you receive it and is taxed at your slab rate. Under the new regime for FY 2025-26, the slabs start at 0% up to Rs 4 lakh, 5% from Rs 4 lakh to Rs 8 lakh and 10% from Rs 8 lakh to Rs 12 lakh, and the section 87A rebate of up to Rs 60,000 removes the tax for a resident individual whose taxable income does not exceed Rs 12 lakh.
| Payout | Statutory treatment | Limit that matters |
|---|---|---|
| Lump sum on exit | Exempt under section 10(12A) | Up to 60% of total amount payable |
| Lump sum above 60% (where allowed) | Not settled by any Finance Act alignment Oquilia has found | Confirm for your assessment year |
| Partial withdrawal | Exempt under section 10(12B) | Up to 25% of own contributions |
| Annuity instalments | Taxed at slab rate in year received | New regime: rebate up to Rs 60,000 on income up to Rs 12 lakh (FY 2025-26) |
| SLW or SUR instalments | FAQ Q92 refers to the Income Tax Act, 1961; no instalment-specific rule stated | Confirm before choosing |
Because Q7 treats each account separately, the "total amount payable" on which a 60% limit is measured may be read account by account. The FAQ does not address tax at that level of detail, so treat this as a question for your adviser, not a settled position.
Worked Drawdown
The example below uses PFRDA's thresholds and an illustrative subscriber. The APW figures are hypothetical, and the 7% annual NAV growth in the SUR table is an assumption for illustration only, not a forecast. Run your own numbers in the retirement drawdown calculator.
The subscriber. Joined Corporate NPS through an employer at age 30, with a retirement age of 60 under the employment terms. The PRAN holds two accounts: a common-scheme account and an MSF scheme advertising a 15-year vesting period.
Scenario 1: leaving at year 15
At 45 the subscriber resigns. The common account holds APW of Rs 4 lakh and the MSF account Rs 9 lakh, the same figures PFRDA uses in its Q37 illustration. Because Q6 rules out a normal exit at year 15, both are premature exits, assessed separately under Q7.
| Account | APW | Maximum lump sum | Minimum annuity |
|---|---|---|---|
| Common scheme | Rs 4 lakh | Rs 4 lakh (100%, as APW is up to Rs 5 lakh) | Nil |
| MSF scheme | Rs 9 lakh | Rs 1.8 lakh (20%) | Rs 7.2 lakh (80%) |
| Total | Rs 13 lakh | Rs 5.8 lakh | Rs 7.2 lakh |
The Rs 7.2 lakh annuity purchase cannot be deferred (Q38). The 15-year vesting period on the MSF scheme gave this subscriber nothing extra.
Scenario 2: retiring at 60
Now assume the subscriber stays to 60, when the common account holds APW of Rs 7 lakh and the MSF account Rs 11 lakh. Each sits in a different Q16 band.
| Account | APW | Option with least annuity | Alternative |
|---|---|---|---|
| Common scheme | Rs 7 lakh | Rs 7 lakh lump sum (100%) | Rs 5.6 lakh lump sum + Rs 1.4 lakh annuity |
| MSF scheme | Rs 11 lakh | Rs 6 lakh lump sum + Rs 5 lakh SUR over at least 6 years | Rs 8.8 lakh lump sum (80%) + Rs 2.2 lakh annuity |
| Both, if combined (illustration only) | Rs 18 lakh | Rs 14.4 lakh lump sum (80%) | Rs 3.6 lakh annuity (20%) |
The last row is what the rules would give on one Rs 18 lakh balance above the Rs 12 lakh band. Applied separately, as Q7 requires, the two accounts allow Rs 13 lakh of lump sum plus Rs 5 lakh through SUR, with no compulsory annuity. That is our reading of Q7 applied to the Q16 table; confirm the options with your POP or Central Recordkeeping Agency before relying on it.
The six-year SUR leg
SUR redeems a fixed number of units, so the payout moves with the NAV (Q13). Suppose the Rs 5 lakh MSF balance is 10,000 units at a NAV of Rs 50, redeemed in six equal annual instalments of about 1,667 units, with NAV assumed to rise 7% a year.
| Year | Assumed NAV (Rs) | Payout (Rs) | Units left | Value left (Rs) |
|---|---|---|---|---|
| 1 | 50.00 | 83,333 | 8,333 | 4,16,667 |
| 2 | 53.50 | 89,167 | 6,667 | 3,56,667 |
| 3 | 57.25 | 95,408 | 5,000 | 2,86,225 |
| 4 | 61.25 | 1,02,087 | 3,333 | 2,04,174 |
| 5 | 65.54 | 1,09,233 | 1,667 | 1,09,233 |
| 6 | 70.13 | 1,16,879 | 0 | 0 |
Total payouts come to Rs 5,96,107 on these assumptions. If NAVs fall instead, each instalment falls with them, because the unit count, not the rupee amount, is fixed. A Systematic Lump Sum Withdrawal (SLW), defined at Q12, fixes the rupee amount instead. To compare an annuity against a self-managed withdrawal plan, use the annuity vs SWP calculator and the glossary entry on SWP.
The choices, side by side
| Decision point | Rule | FAQ reference |
|---|---|---|
| Normal exit date | Age of superannuation or retirement, not years in scheme | Q5, Q6 |
| Two schemes under one PRAN | Each exits on its own APW | Q7 |
| Deferment | Allowed after normal exit eligibility, up to 85 | Q25, Q27 |
| Continuation | Shift to All Citizen Model, up to 85 | Q19, Q21 |
| After shifting to ACM on retirement | All Citizen Model exit benefits apply | Q95 |
Q95 has a wrinkle: if the original employer is a statutory body, or an entity under the ownership and control of the Government or a Government company, the exit benefits after shifting are those "applicable for Government Sector", not the All Citizen Model.
FAQ
Can I take normal exit from a 15-year-vesting MSF scheme after 15 years if I joined through my employer?
No. PFRDA's March 2026 FAQ (Q6) says a Corporate Sector subscriber's normal exit is linked to the age of superannuation or retirement, even if the MSF scheme provides a 15-year vesting period. Leaving earlier is a premature exit.
Are exit rules different for common schemes and MSF schemes?
No. Q4 of the FAQ says the exit and withdrawal provisions "apply uniformly" to both. PFRDA's circular of 28 August 2026 on a standardised scheme classification framework removes the common versus MSF distinction going forward.
I hold two pension accounts under one PRAN. Is my APW added together at exit?
No. Q7 says each scheme is a separate individual pension account, and the Exit Regulations apply to each one independently. A Rs 7 lakh account and an Rs 11 lakh account are tested against the Rs 8 lakh and Rs 12 lakh bands separately.
How much can I take as lump sum if I leave my job early with Rs 9 lakh in NPS?
Up to Rs 1.8 lakh (20%), with at least Rs 7.2 lakh (80%) used to buy an annuity, per PFRDA's Q37 illustration. If APW is Rs 5 lakh or less, you may take the full amount as a lump sum.
Can I defer the annuity on a premature exit?
No. Q38 rules out deferment on a premature exit. The annuity can start immediately from the provider's minimum purchase age, which PFRDA illustrates as 30, 35 or 38 (Q82).
Is the NPS lump sum tax-free?
Section 10(12A) exempts the lump sum on closure or opting out up to 60% of the total amount payable. PFRDA now allows non-government subscribers to withdraw up to 80% at normal exit, but the Income-tax Act's 60% limit has not been aligned with it, so confirm the treatment of anything above 60% with a tax adviser.
This article is for information only and is not tax or investment advice. Figures are taken from PFRDA's FAQ (updated March 2026) and the PFRDA Exit Regulations as amended on 19 December 2025; check the current position with your POP before you act.