The National Pension System (NPS) is undergoing a significant transformation, with changes set to take effect from October 1, 2025. These reforms aim to provide greater flexibility, more personalized retirement solutions, and better alignment with global best practices in pension system design, particularly for subscribers in the non-government sector.

100% Equity Allocation

One of the most notable changes is the allowance of up to 100% equity allocation in NPS schemes for non-government subscribers. Previously, there was a limit on equity investments, but the new regulations, implemented under the Multiple Scheme Framework (MSF), will permit subscribers to allocate their entire funds to equity options. This caters to individuals with a higher risk appetite who are seeking potentially higher returns over the long term. However, it's important to acknowledge the inherent risks associated with equity markets, which are subject to volatility.

Multiple Scheme Framework (MSF)

The Pension Fund Regulatory and Development Authority (PFRDA) is introducing the Multiple Scheme Framework (MSF). This framework allows NPS subscribers who are not employed by the government to hold multiple schemes under a single Permanent Retirement Account Number (PRAN) across various Central Record Keeping Agencies (CRAs). Previously, subscribers were limited to a single investment choice per tier and were associated with only one CRA. The MSF removes constraints on diversification, providing subscribers with greater scope for aligning their investments with their evolving retirement and wealth-building goals. This feature will be available through all CRAs, including CAMS, Protean, and KFintech.

Under the MSF, pension funds will have the flexibility to design schemes tailored to specific subscriber groups, such as digital economy workers, self-employed professionals, and corporate employees with employer co-contributions. Each scheme must offer at least two variants: a moderate-risk option and a high-risk option, with equity allocation allowed up to 100% in the high-risk category. Pension funds may also introduce low-risk variants at their discretion.

Switching Schemes

Subscribers who are not satisfied with their current scheme's performance under the MSF can switch to common schemes (old schemes of PFs) if the vesting period (holding period) of 15 years is not completed. However, once the 15-year vesting period is completed, they can freely move across various schemes without any restriction. A vesting period is compulsory for a Tier-1 account, whereas it is optional for Tier-2.

Additional Proposals and Considerations

In addition to the MSF, the PFRDA has issued draft proposals to simplify withdrawal and exit rules. One proposal suggests allowing investors to exit NPS after completing 15 years, even before turning 60. Another proposal under consideration involves reducing compulsory annuitisation from 40% to 20% of the corpus. PFRDA is also planning to include new investment options such as gold, silver and unlisted companies through Alternative Investment Funds (AIFs). These changes could be especially useful for younger workers and those in the private sector.

These reforms collectively aim to make the NPS a more flexible, attractive, and modern retirement savings option. By offering a wider array of investment choices, tailoring schemes to specific needs, and easing withdrawal rules, the NPS is adapting to the evolving financial landscape and the diverse requirements of Indian savers.