The Pension Fund Regulatory and Development Authority (PFRDA) has updated its rules regarding the surrender of annuity policies under the National Pension System (NPS). The new rules offer relief to subscribers facing critical illnesses and certain policyholders with old annuity contracts and an explicit surrender clause.
According to the circular issued on May 14, 2026, PFRDA says annuity service providers (ASPs) will now be allowed to process surrender requests in specific cases, including critical illness of an annuitant or their family members, and in cases where annuities with an explicit surrender clause were issued before a PFRDA circular on October 24, 2024.
Nonetheless, PFRDA reiterated that ASPs will not accept any surrender or cancellation of annuities except for the free look cancellation period. The pension body also said that the funds from such cancellations shall be used for the issuance of another annuity from the same ASP or any other ASP.
PFRDA relaxes rules for these NPS subscribers
PFRDA says upon review and to protect interests of subscribers, it has been decided to relax the restriction on the surrender of annuity policies in the following cases:
a. Critical illness of the annuitant or his/her family members, subject to an assessment by the ASP as per the standard process and policy adopted by the ASP for allowing such surrender for critical illness.
b. Annuity policies issued before October 24, 2024, which contain an explicit surrender clause in the policy document.
Why did PFRDA allow annuity surrender in these two cases?
This decision follows PFRDA getting feedback about the difficulties faced by annuitants on account of these restrictions, specifically in cases where the annuities issued before the referred circular provided an clearsurrender clause in specific circumstances.
PFRDA also received requests to allow surrender of annuity in case of critical illness of the annuitant or any family member of the annuitant.
Earlier, under PFRDA’s October 24, 2024 circular, annuity surrender or cancellation was largely prohibited except during the free-look cancellation period. The restriction was introduced to ensure long-term income security for pension subscribers after retirement.
The regulator also said that the surrender process will be strictly in line with the terms and conditions of the original policy contract, specific annuity scheme features and applicable PFRDA and IRDAI guidelines.
What is the process to approve the surrender of annuity?
Before processing any surrender request, annuity service providers will have to:
a)Communicate the final amount transferable upon surrender.
b)Provide a clear bifurcation of all applicable charges and tax in writing to the annuitant.
c)Provide a clear breakup of charges, deductions and taxes
d)Obtain explicit written consent from the annuitant before processing the surrender
Once approved, the surrender value will be credited directly to the subscriber’s bank account.
PFRDA clarified,that the reverse information flow regarding the surrendered annuity shall be shared with the respective CRA within seven working days.
Also, all such cases will be reported in the monthly cancellation report submitted to the authority, PFRDA stated.
