National Pension System: New rules implemented from October 1

National Pension System: Major changes to the National Pension System (NPS) are set to take effect on October 1, 2025. The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a “Multiple Scheme Framework” (MSF) aimed at providing more flexibility and greater choice for non-government subscribers.

National Pension System key changes and benefits:

1. 100% Equity Allocation:

Under the new framework, non-government NPS subscribers will have the option to allocate up to 100% of their funds into equities within a single NPS scheme. Previously, the maximum equity allocation was capped at 75%. This change is expected to offer the potential for higher returns, especially for younger investors with a higher risk appetite.

2. Multiple Schemes under One PRAN:

The new Multiple Scheme Framework (MSF) will allow non-government subscribers to have multiple pension schemes under a single Permanent Retirement Account Number (PRAN) and across different Central Recordkeeping Agencies (CRAs).

This is a significant shift from the previous system, where a subscriber was limited to one scheme per tier with a single CRA. This change will enable greater diversification and allow investors to better align their investments with their evolving financial goals.

3. Tailored Schemes for Different Investor Profiles:

Pension Funds will now be permitted to design and launch schemes that are specifically tailored to the needs of different subscriber groups. This could include schemes for:

Self-employed professionals

Gig and platform-based workers

Corporate employees

Each scheme will have at least two variants a moderate-risk option and a high-risk option with the high-risk option allowing for the 100% equity allocation. Pension Funds may also introduce low-risk variants at their discretion.

4. Increased Transparency and Benchmarking:

To ensure transparency, each new scheme will be benchmarked against relevant market indices (e.g., equity, bond, or composite indices). Pension Funds will also be required to publish a document called “NPS Scheme Essentials,” which will detail the scheme’s objectives, risks, fee structure, and other important information.

5. Switching and Vesting Period:

The new rules also address switching between schemes. Subscribers can switch their investments from one MSF scheme to another, but a minimum vesting period of 15 years is required. However, they can switch to a common (old) scheme before the completion of the vesting period if they are dissatisfied with the performance of their current scheme.

It is important to note that these changes apply to non-government NPS subscribers. The PFRDA has also been working on other proposals, such as allowing subscribers to get financial assistance from regulated financial institutions against their individual pension accounts.

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