NPS Undergoes Major Overhaul: Greater Flexibility and Higher Equity Exposure for Indian Subscribers from Oct 1, 2025

The National Pension System (NPS) is set for a transformative period, with the Pension Fund Regulatory and Development Authority (PFRDA) ushering in a series of significant changes aimed at enhancing flexibility, choice, and potential returns for non-government subscribers across India. Key among these is the introduction of the Multiple Scheme Framework (MSF), effective from October 1, 2025, alongside an exposure draft proposing comprehensive revisions to exit and withdrawal regulations.

Multiple Scheme Framework: A New Era for NPS Investments

From October 1, 2025, non-government NPS subscribers will experience a paradigm shift in their investment options with the implementation of the Multiple Scheme Framework (MSF). This new framework allows pension fund managers (PFMs) to launch multiple tailored schemes, moving away from the previous limitation of one scheme per asset class. Subscribers will now have the unprecedented ability to invest in multiple schemes under a single Permanent Account Number (PAN), offering greater diversification and personalization of their retirement savings.

Key Changes under MSF:

• 100% Equity Allocation: A major highlight is the provision for PFMs to offer high-risk variants with up to 100% equity allocation, a significant increase from the previous 75% cap. This caters to younger investors or those with a higher risk appetite seeking potentially higher long-term returns.
• Tailored Schemes: Pension funds can design schemes tailored to specific subscriber personas, such as corporate employees, self-employed professionals, or gig workers. Each scheme must offer at least two variants (moderate and high-risk), with low-risk options available at the PFM's discretion.
• Consolidated Reporting: The system will enable consolidated reporting across Central Recordkeeping Agencies (CRAs) through a subscriber's PAN, simplifying the management of multiple schemes.
• Cost Structure and Transparency: The MSF introduces a capped annual charge of 0.30% of Assets Under Management (AUM), ensuring cost-effectiveness. Furthermore, schemes will be benchmarked against relevant market indices, and PFMs must publish "NPS Scheme Essentials" documents, including a risk-o-meter, to ensure transparency.
• Vesting Period and Switching: New schemes under MSF will have a minimum vesting period of 15 years. While switching between different MSF schemes is generally permitted after this 15-year vesting period or at normal exit, subscribers can switch back to a common scheme (existing NPS schemes) even during the vesting period.

Proposed Reforms to Exit and Withdrawal Rules

In parallel with the MSF, PFRDA has released an exposure draft on amendments to the NPS exit and withdrawal regulations, inviting public comments until October 17, 2025. These proposals, if implemented, will significantly alter how subscribers can access their accumulated pension wealth.

Highlights of the Proposed Changes:

• Enhanced Lump Sum Withdrawal at Normal Exit: The proposed rules suggest increasing the lump sum withdrawal limit at normal exit to 80% of the corpus, with the remaining 20% mandated for annuity purchase. This is a substantial increase from the current 60% lump sum and 40% annuity requirement. It's crucial to note that of the 80% lump sum, only 60% will be tax-free, with the remaining 20% taxed as per the subscriber's income slab.
• Higher Withdrawal Limits for Small Corpus: For subscribers with a small corpus, the full lump sum withdrawal limit is proposed to be increased from ₹5 lakh to ₹12 lakh. For amounts up to ₹12 lakh, subscribers may withdraw ₹6 lakh (50%) as a lump sum, with the balance paid via 5-year systematic payouts or annuity.
• Increased Premature Withdrawal Limit: The limit for complete lump sum withdrawal in case of premature exit is proposed to be raised from ₹2.5 lakh to ₹4 lakh. However, for voluntary exits before the vesting period, at least 80% of the accumulated pension wealth must still be utilized for annuity purchase, with the balance 20% payable as a lump sum.
• Extended Age Limits: The maximum age for joining and continuation in NPS is proposed to be extended to 85 years, up from the current 70 and 75 years respectively.
• Flexible Partial Withdrawals: The calculation for partial withdrawals is proposed to shift to being based on the corpus available at the time of request, offering more flexibility. The frequency of partial withdrawals is also set to increase to six times before reaching normal age, compared to the current three times during the entire subscription period.
• Loan Facility Introduced: A significant new proposal is to allow subscribers to avail loans against their NPS holdings, a facility currently not permitted. This could provide much-needed liquidity for subscribers in financial distress.

These sweeping changes underscore PFRDA's commitment to making NPS a more attractive, flexible, and robust retirement savings vehicle for the Indian populace. While the Multiple Scheme Framework is set to roll out soon, the proposed amendments to exit and withdrawal rules are currently open for feedback, indicating a continued evolution of the NPS to meet the dynamic needs of its subscribers.