Government-Sector NPS Members Get Wider Investment Choice: What CAB Subscribers Can Now Do

Subscribers of the National Pension System (NPS) who work for Central Autonomous Bodies (CABs) now have six ways to invest their pension contributions instead of four. The Pension Fund Regulatory and Development Authority (PFRDA) made the change through Circular No. PFRDA/2026/39/SUP-CGSG/01 dated 9 July 2026, which adds two new Auto Choice life-cycle funds with higher equity exposure.

The circular follows an Office Memorandum, F.No. 1(3)/EV/2020 dated 1 July 2026, issued by the Department of Expenditure in the Ministry of Finance. It mirrors an earlier expansion for Central Government subscribers, notified by PFRDA Circular No. PFRDA/2025/21/Reg-PF/03 dated 1 December 2025 after a Department of Financial Services Gazette Notification dated 13 November 2025.

For a CAB employee, the gap between a 5% and a 35% equity allocation at age 55 is not a technical detail. This guide covers the 6 options, the tax on withdrawal and a worked drawdown. Use the NPS calculator to test your own numbers.

The Scheme Explained

PFRDA groups Central Government, CAB, State Government and State Autonomous Body subscribers in the NPS government sector. Until 9 July 2026, CAB members had 4 investment patterns to pick from.

The four options that already existed

Paragraph 3 of the circular lists the choices available to CAB subscribers before the change. They are reproduced in the table below with the equity limits exactly as PFRDA describes them.

In the labels, "5E/55Y" means equity ends at 5% at age 55 and stays there until exit.

The two options added on 9 July 2026

Paragraph 4 of the circular introduces two further Auto Choice funds. Both keep more money in equity for longer than either of the earlier life-cycle funds.

LC75 High starts with the highest equity share of any CAB option, 75%, but begins tapering at 35, like the older funds. The Aggressive fund starts lower, at 50%, but holds that level for 10 more years, until 45, and keeps 35% in equity from 55 until exit. That last figure is 7 times the 5% end-point of LC25 Low.

How a subscriber exercises the choice

Paragraph 5 of the circular sets 2 conditions for anyone who leaves the Default Scheme. The subscriber must (a) pick one of the 5 non-default investment options, and (b) select one pension fund from those currently registered with PFRDA. So the choice is two-part: an asset-allocation pattern and a fund manager.

Paragraph 6 advises subscribers to choose "judiciously", using performance data on the NPS Trust website (npstrust.org.in). PFRDA issued the circular under Section 14(2)(b) read with Section 23 of the PFRDA Act, 2013, and Regulation 14(1) of the PFRDA (Pension Fund) Regulations, 2015.

What the circular does not change

The circular deals only with investment choice. It does not change how much a CAB subscriber may take out at exit. Under the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, notified on 19 December 2025, the government sector remains on a 60/40 split: up to 60% of the corpus as a lump sum and at least 40% used to buy an annuity. The 80/20 split introduced by the same amendment applies only to the non-government sector (All Citizen and Corporate models).

Partial withdrawals are also unchanged: up to 25% of the subscriber's own contributions, after at least 3 years in the scheme, up to 4 times before 60 with a gap of at least 4 years between withdrawals. Read the NPS glossary entry for the basic terms.

Tax on Withdrawal

Switching options inside NPS is not a sale, so the equity-heavy LC75 High fund is not taxed like an equity mutual fund, where long-term gains above Rs 1.25 lakh are taxed at 12.5%. Tax arises only when money leaves NPS, by 3 routes.

Lump sum at exit: Section 10(12A)

Section 10(12A) exempts the payment received on closure or opting out "to the extent it does not exceed sixty per cent of the total amount payable". For a CAB subscriber this lines up neatly: PFRDA's government-sector lump-sum ceiling is also 60%. A government-sector subscriber who takes the full 60% lump sum is therefore within the exemption, whichever of the 6 investment options built the corpus.

This alignment is worth stating plainly because it does not hold for the private sector. A non-government subscriber may now withdraw up to 80%, while Section 10(12A) still covers 60%. Oquilia has not found any Finance Act change on the remaining 20%, so private-sector members should confirm that slice with their tax adviser. CAB members are not affected by this gap.

Partial withdrawal: Section 10(12B)

Section 10(12B) exempts a partial withdrawal up to 25% of the subscriber's own contributions, which is the same limit PFRDA allows. Employer contributions and investment returns are not part of that 25% base. A CAB employee who has contributed Rs 12 lakh of their own money could therefore withdraw up to Rs 3 lakh, tax-free, for a permitted purpose.

Annuity income: taxed at slab

The minimum 40% that goes into an annuity is not taxed on purchase, but the pension it pays each year is taxable at the subscriber's slab rate. Under the new regime for FY 2026-27, the slabs and rebate are as follows, per incometax.gov.in.

The Section 87A rebate in the new regime is up to Rs 60,000 where total income does not exceed Rs 12 lakh, which removes slab tax for most retirees whose only income is pension, annuity and deposit interest.

Note that the Section 80CCD(1B) deduction for voluntary NPS contributions is available only in the old regime, not the new one. See the LTCG glossary entry for how capital gains treatment differs from NPS withdrawals.

Worked Drawdown

The example uses 1 assumed corpus and assumed income figures. Neither is a return forecast; PFRDA's circular, dated 9 July 2026, contains no return projections.

Step 1: equity held at exit under each option

Assume a CAB subscriber reaches 60 with a corpus of Rs 1 crore. Under every Auto Choice option the equity share has been at its end-point since 55, so the money in equity at exit is fixed by the circular's own percentages.

The difference between the most cautious and most aggressive life-cycle option is Rs 30 lakh of equity on the same Rs 1 crore. A 10% fall in equity markets in the year before exit would cut Rs 50,000 from the LC25 Low corpus but Rs 3.5 lakh from the LC Aggressive corpus. That arithmetic, not past returns, is the core of the choice for anyone within 5 years of retirement.

Step 2: splitting the corpus at exit

As a government-sector subscriber, the CAB employee may take up to 60% as a lump sum and must annuitise at least 40%. On Rs 1 crore that is Rs 60 lakh in cash and Rs 40 lakh used to buy an annuity. Because the lump sum is exactly 60%, the whole Rs 60 lakh falls within the Section 10(12A) exemption.

Step 3: a five-year income plan

Suppose the subscriber places Rs 25 lakh of the lump sum in the Senior Citizens' Savings Scheme (SCSS) at the current 8.2%. The remaining Rs 35 lakh goes into a systematic withdrawal plan (SWP) in a debt-oriented fund, drawing Rs 2.4 lakh a year. For illustration only, the SWP balance is assumed to earn 7% a year and the annuity is assumed to pay Rs 2.4 lakh a year; actual annuity quotes vary by insurer, age and annuity type.

The SWP balance is computed as the opening balance times 1.07, less the Rs 2.4 lakh draw at year end. At 8.2%, Rs 25 lakh in SCSS pays Rs 2,05,000 a year, or Rs 51,250 a quarter. The SWP draw of Rs 2.4 lakh a year is below the assumed Rs 2.45 lakh return on Rs 35 lakh, so the balance edges up by about Rs 5,000 to Rs 6,500 a year.

Step 4: tax on that income

In the new regime, SCSS interest of Rs 2,05,000 and annuity income of Rs 2,40,000 are taxable, a total of Rs 4,45,000. Only the gain portion of each SWP redemption is taxed, not the full Rs 2.4 lakh. On Rs 4,45,000 the slab tax is 5% of Rs 45,000, which is Rs 2,250. Because total income is below Rs 12 lakh, the Section 87A rebate of up to Rs 60,000 wipes this out, leaving nil tax.

Step 5: how the option changes the picture

Until the money leaves NPS, the end-point equity share keeps working: Rs 35 lakh of the Rs 1 crore on LC Aggressive, Rs 5 lakh on LC25 Low. Run both against the retirement drawdown calculator and the annuity vs SWP calculator to see how a market fall in the final 5 years before exit would change your income plan.

FAQ

How many investment options do CAB subscribers have now?

Six. PFRDA's circular of 9 July 2026 lists 4 existing options (Default Scheme, Active Choice 100% G-Sec, LC25 Low and LC50 Moderate) and adds 2 new ones (LC75 High and LC Aggressive). Paragraph 2 of the circular confirms the total of 6.

Does the circular allow CAB subscribers to hold 75% equity in Active Choice?

No. For CAB subscribers, Active Choice remains 100% Government Securities, as paragraph 3 of the circular states. The 75% figure in the new options is the starting equity share of the LC75 High Auto Choice fund, which applies until age 35 and then tapers to 15% at 55.

Which new option keeps the most equity near retirement?

LC Aggressive (35E/55Y). It holds 50% equity until 45 and tapers to 35% at 55, which then continues until exit. LC75 High starts higher, at 75%, but ends at 15% from 55 onwards.

Do I have to choose a pension fund as well?

Yes. Paragraph 5 of the circular requires any subscriber leaving the Default Scheme to pick one of the 5 non-default options and select 1 pension fund from those currently registered with PFRDA.

Does a switch between options trigger capital gains tax?

No tax is triggered by switching inside NPS. Tax arises only on withdrawal: the lump sum is exempt up to 60% of the corpus under Section 10(12A), a partial withdrawal up to 25% of own contributions is exempt under Section 10(12B), and annuity income is taxed at slab rates.

Has the CAB exit limit moved to 80% lump sum?

No. The 80/20 split from the amendment notified on 19 December 2025 applies only to the non-government sector. CAB subscribers are in the government sector, where the limits remain 60% lump sum and 40% minimum annuity. The full corpus may be taken as a lump sum only if it is Rs 8 lakh or less.

Where can I compare pension fund performance before choosing?

PFRDA's circular points subscribers to the NPS Trust website, npstrust.org.in, for scheme-wise and pension-fund-wise performance. The NPS calculator lets you model a corpus at different return assumptions; the circular itself sets no return figures.

This article is for information only and is not investment advice. Figures are from PFRDA Circular No. PFRDA/2026/39/SUP-CGSG/01 dated 9 July 2026, the PFRDA exit regulations as amended on 19 December 2025, and the Income-tax Act. Worked figures marked "assumed" are illustrations, not forecasts.