The Pension Fund Regulatory and Development Authority (PFRDA) has proposed major changes to the National Pension System (NPS), introducing a Multiple Scheme Framework (MSF), revising exit rules, and allowing higher equity exposure for private subscribers. The reforms, effective from 1 October 2025, are aimed at making NPS more flexible and attractive for non-government participants.
Under the new framework, non-government sector subscribers will be permitted to invest up to 100 per cent of their pension corpus in equities. This marks a departure from the earlier ceiling of 75 per cent and the restriction of a single scheme per tier per record-keeping agency (CRA). With the MSF, subscribers can now opt for multiple schemes across CRAs such as CAMS, Protean, and KFintech, under a single Permanent Retirement Account Number (PRAN).
Each MSF scheme will have at least two variants—moderate and high-risk—while pension funds may also offer low-risk options. These schemes will be benchmarked against relevant indices to ensure transparency. However, a 15-year vesting period has been prescribed before switching between schemes under the MSF, although certain exceptions will allow earlier transitions.
On costs, the regulator has capped annual charges at 0.30 per cent of assets under management, significantly higher than the current 0.03-0.09 per cent range. To encourage enrolment, pension funds enrolling more than 80 per cent of new subscribers will receive an additional incentive of 0.10 per cent, applicable for three years or until the scheme reaches 50 lakh subscribers.
Exit Rule Overhaul
The PFRDA has also proposed substantial amendments to NPS exit provisions. The term ‘exit’ will now extend to situations such as NPS Vatsalya and renunciation of citizenship. Entry and exit age limits have been revised, while subscribers will no longer be required to give prior intimation for deferring annuity or lump sum withdrawals.
Partial withdrawals may now be permitted post-retirement, subject to revised limits, purposes, and frequency. For government employees, the draft allows a one-time switch from the Unified Pension Scheme (UPS) to NPS, exercisable up to one year before superannuation or three months before voluntary retirement.
Non-government subscribers stand to benefit from higher lump sum withdrawal thresholds and the option of systematic unit redemption if their pension wealth falls below a defined limit.
The reforms are expected to particularly boost participation from private sector employees, who currently contribute only one-fifth of NPS assets despite steady growth. By offering a range of schemes tailored for different professions and risk appetites—including gig workers and corporate employees—the MSF is designed to give subscribers more flexibility and control over their retirement planning.
In the case of scheme closures, subscribers will automatically be shifted to alternative plans, with the default being the Tier 1 auto choice LC50 plan, which gradually reduces equity exposure with age
