NPS gets a makeover: Flexibility, investor choices rise—so do risks

MSF schemes charge higher fees; advisors suggest assessing risk appetite and retirement goals before investing

- Sashind Ningthoukhongjam

India’s retirement system is getting a bold rewrite. The National Pension System (NPS), once known for its simplicity and safety, will now let investors go all-in on equities, pick specialized funds and exit after just 15 years. The changes have been introduced under the new Multiple Schemes Framework (MSF) by the Pension Fund Regulatory and Development Authority (PFRDA).

Experts say the move marks a shift from a “one-size-fits-all” pension plan to a more personalized, market-linked structure—though one that may blur the line between a retirement product and a pure investment scheme.

Launched in 2004 for government employees, NPS replaced a defined benefit pension with a defined contribution model. In the earlier setup, the government guaranteed a fixed pension payout. Under NPS, however, only the contribution amount is fixed—the final pension depends on the performance of the schemes.

By 2009, the NPS was opened up to private-sector employees, allowing them to make regular contributions and withdraw 60% of the corpus tax-free after turning 60. The remaining 40% must be used to purchase an annuity, which provides a monthly pension—fully taxable as per the subscriber's income slab.

Subscribers under the earlier framework could divide their contributions across equities, government securities, corporate bonds and up to 5% in alternative assets such as REITs, InvITs and AIFs. For seasoned investors, the active choice option offered control over allocations within set limits—a maximum of 75% in equities and 5% in alternatives. Others could opt for auto choice, where the mix was automatically adjusted based on age and risk profile.

What's changing under the new framework