Opening an NPS All Citizen Account: The Low-Cost Way to Build Your Own Pension

The National Pension System (NPS) All Citizen Model is a voluntary, defined-contribution retirement account that any resident Indian can open, and PFRDA describes it on its scheme page as one of the lowest-cost pension products in the world (pfrda.org.in, NPS for All Citizen Models). Unlike a bank recurring deposit or the Public Provident Fund, it carries no guaranteed rate; your eventual corpus depends on the pension fund managers and asset classes you choose. This guide sets the All Citizen Model against the fixed-rate alternatives most retirees compare it with, then works through the exit and drawdown maths using only figures traceable to PFRDA's December 2025 amendment and the current small-savings notifications.

The comparison matters because the withdrawal rules changed materially on 19 December 2025, when PFRDA notified the Exits and Withdrawals (Amendment) Regulations, 2025. The single most dangerous misconception today is that the higher 80% lump-sum limit is automatically tax-free; it is not, because section 10(12A) still exempts only 60% of the total amount payable, and the sections below keep the 80% withdrawal ceiling and the 60% tax ceiling strictly separate.

The Scheme Explained

The All Citizen Model gives you a Tier I account, which is the pension account with tax benefits under the Income-tax Act 1961, and an optional Tier II account, which is a flexible savings wrapper with no lock-in and no exit restrictions. Under Tier I you select a pension fund manager and split contributions across four asset classes: equity, corporate debt, government securities and alternative investment funds, either through the Auto choice (a glide path that de-risks with age) or the Active choice (you set the weights). PFRDA raised the maximum permissible entry and exit age to 85 in the current framework, so a subscriber can now stay invested far longer than the old cap allowed.

Because the account is a defined-contribution vehicle rather than a defined-benefit pension, there is no promised monthly figure the way the Employees' Pension Scheme promises one. That is the core trade the All Citizen subscriber accepts: full portfolio control and low fees in exchange for bearing the market risk yourself. The NPS calculator lets you model different asset mixes before you commit.

The amended rules also make NPS practical for modest savers, not just those chasing a crore. A corpus of Rs 8,00,000 or below at exit can be taken 100% as a lump sum with no compulsory annuity, and a corpus above Rs 8,00,000 up to Rs 12,00,000 falls into a small-corpus band that caps the immediate lump sum at Rs 6,00,000 with the balance routed through SLW or an annuity. Those thresholds, unchanged by the 19 December 2025 amendment, mean a subscriber who accumulates only a few lakh is not pushed into a token monthly annuity that barely covers a utility bill.

How does that sit against the fixed-rate options a 40 or 50 year old typically weighs? The table below uses only the rates on the current official record.

The reading is straightforward: PPF at 7.1%, EPF at 8.25% and SCSS at 8.2% hand you certainty, while NPS hands you an equity option no fixed-rate scheme offers. On the contributions side, the additional deduction under section 80CCD(1B) is available only in the old tax regime; you cannot claim it in the new regime, so the account's headline tax pull is weaker for anyone who has moved to the default regime for FY 2025-26.

Tax on Withdrawal

This is where the 19 December 2025 amendment creates a trap. For the non-government sector, which includes the All Citizen Model, PFRDA raised the maximum lump sum at exit to 80% of the corpus, leaving a minimum of 20% to buy an annuity. But PFRDA has no authority over the Income-tax Act, and section 10(12A) still exempts the closure payment only "to the extent it does not exceed sixty per cent of the total amount payable" (60% since 1 April 2020, per incometax.gov.in). So the withdrawal ceiling (80%) and the tax-exemption ceiling (60%) have diverged.

Read that carefully. On a Rs 1 crore corpus you may now withdraw Rs 80 lakh, but only Rs 60 lakh is covered by the section 10(12A) exemption. The Rs 20 lakh slice sitting between the 60% and 80% marks is not addressed by that exemption, and no aligning Finance Act change has been found; do not assume it is tax-free and do not assume it is taxable either. Treat the two limits as separate numbers and confirm the excess with a tax adviser or the current Income-tax Act text on incometax.gov.in before you file.

The mandatory annuity portion is treated differently and more simply: the purchase of the annuity itself is not taxed when you buy it, but the pension it pays is taxable at your slab rate in each year you receive it, as retirement income. Under the new-regime slabs for FY 2025-26, income up to Rs 4,00,000 is nil-rated and the section 87A rebate now runs up to Rs 60,000 with a Rs 12,00,000 threshold, so a retiree whose only income is a modest NPS pension may pay little or no tax on it (incometax.gov.in). Partial withdrawals before exit are the clean part of the code: section 10(12B) exempts up to 25% of the subscriber's own contributions, which exactly matches the PFRDA partial-withdrawal limit, so that pathway carries no divergence.

Worked Drawdown

Take a subscriber, Meera, who reaches superannuation at 60 with a Tier I corpus of exactly Rs 1 crore in an All Citizen account. Under the amended non-government rules she can commute up to 80% (Rs 80,00,000) and must annuitise at least 20% (Rs 20,00,000). If she takes the full 80%, Rs 60,00,000 is exempt under section 10(12A) and the Rs 20,00,000 between the 60% and 80% marks must be checked separately, as set out above. Her Rs 20,00,000 annuity then pays a lifelong pension taxed at slab each year.

The exit rules are gentler for smaller corpuses, and the amendment kept those thresholds. The table below shows the withdrawal outcome at exit for three corpus sizes, using only the bands in PFRDA's amended schedule.

Rather than take everything at once, Meera can use the Systematic Lump Sum Withdrawal (SLW) route and keep the balance invested while drawing an income, deferring right up to the exit age of 85. To illustrate the multi-year effect on her Rs 60,00,000 tax-exempt portion, assume it stays invested and grows at the PPF benchmark of 7.1% (Q2 FY 2026-27) while she draws Rs 5,00,000 a year. This 7.1% is used only as an illustrative growth peg; NPS carries no guaranteed rate.

After three years Meera has drawn Rs 15,00,000 yet her invested balance is still Rs 57,61,865, because the 7.1% illustrative growth roughly offsets a Rs 5,00,000 annual draw. This is the arithmetic case for SLW over a single lump sum: it keeps the corpus working and spreads any taxable event across years instead of realising the whole Rs 80,00,000 in one assessment year. Model your own numbers with the annuity vs SWP calculator and the retirement drawdown calculator, which let you vary the growth rate and withdrawal.

One more amendment detail matters for early leavers: the old five-year lock-in on premature exit was removed on 19 December 2025. If Meera had left before 60, the split would invert to a maximum 20% lump sum and a minimum 80% annuity, unless her corpus were Rs 5,00,000 or below, in which case she could take the whole amount. That inversion is the single strongest reason to treat NPS as a long-hold instrument rather than a medium-term one, and it is why the 7.1% PPF certainty appeals to savers who may need the money before superannuation.

Meera can also stagger the decision itself. Because the exit and entry age now runs to 85, she is not forced to lock the 80/20 split at 60; she may keep contributing, let the four asset classes compound, and only convert to an annuity when rates or her income needs make it worthwhile. Deferring also keeps the mandatory 20% (Rs 20,00,000 on her Rs 1 crore corpus) invested rather than committed to an annuity contract early, which is the practical benefit of the raised age ceiling introduced alongside the 19 December 2025 amendment.

FAQ

What return does the NPS All Citizen Model guarantee?

None. PFRDA's own scheme page describes it as a defined-contribution product with no fixed rate (pfrda.org.in, updated for the 19 December 2025 amendment). Your outcome depends on the pension fund manager and asset mix you pick, which is why the fixed-rate comparison in the table above shows PPF at 7.1%, EPF at 8.25% and SCSS at 8.2% as certainty-based alternatives.

Is the 80% NPS lump sum tax-free, or only 60% of it?

You can withdraw up to 80% under the non-government rules from 19 December 2025, but "tax-free" is only certain up to 60% under section 10(12A) (incometax.gov.in). The 60% to 80% slice, worth Rs 20 lakh on a Rs 1 crore corpus, is not covered by that exemption; confirm its treatment before assuming either outcome.

Is the 80CCD(1B) deduction available in the new tax regime?

No. The additional deduction under section 80CCD(1B) is available only in the old regime; it cannot be claimed in the new regime that is the default for FY 2025-26. Anyone on the new regime should weigh NPS on its investment merits, not on that specific deduction.

How much of my own money can I take out before I turn 60?

Section 10(12B) exempts a partial withdrawal of up to 25% of your own contributions, excluding the returns and any employer share, after a minimum of three years in the scheme (PFRDA amended rules, 19 December 2025). Before 60 this is allowed up to four times with a gap between withdrawals; after 60 the frequency cap is relaxed.

What happens to my NPS if I exit before age 60?

The split inverts: a maximum 20% lump sum and a minimum 80% annuity, per the non-government rules amended on 19 December 2025. The only relief is a corpus of Rs 5,00,000 or below, which can be taken fully as a lump sum. The earlier five-year premature-exit lock-in was removed by the same amendment.

How late can I keep contributing and defer withdrawal?

PFRDA set the maximum entry and exit age at 85 in the current framework. That lets an All Citizen subscriber keep the corpus invested and use SLW to draw income across many years rather than commuting the whole amount at 60, which is the drawdown strategy modelled above.

Is NPS better than PPF or SCSS for retirement?

They answer different needs as of Q2 FY 2026-27: PPF (7.1%) and SCSS (8.2%) give sovereign-backed certainty, while NPS offers an equity option and a lower cost structure but no guarantee. Many retirees hold a mix; the NPS calculator helps you size the market-linked portion against the fixed-rate base.