What new NPS rules mean for your retirement savings

The pension regulator has proposed fresh investment options & mooted easier withdrawals

- Sashind Njingthoukhongjam

The National Pension System (NPS) is set for its biggest reset in years. Under new chairman Sivasubramanian Ramann, the pension regulator has paved the way for fresh investment options and mooted easier withdrawal rules that could reshape how millions of Indians save for retirement.

From 1 October, pension fund managers can launch customised schemes under a new multiple schemes framework (MSF). These will allow allocations of up to 100% in equities, breaking the current 75% cap. The schemes for non-government subscribers can be tailored by persona, gender, or profession. While plans with moderate and high risk will be available, managers can launch a low-risk variants.

The Pension Fund Regulatory and Development Authority (PFRDA) also issued a draft exposure proposing a list of changes relating to exits and withdrawals. The big sweeping proposal is to offer more lump sum to individuals by proposing 80% corpus withdrawal at retirement, up from 60% currently, and reducing the mandatory annuities from 40% to 20%. The proposal to reduce the annuities portion and the new schemes under MSF are only for non-government subscribers.

So what are the big changes under way and what do they mean? The first part discusses changes that take effect on 1 October, and the subsequent part discusses the amendments in the NPS that are in the proposal stage.

Multiple scheme framework

Currently, an NPS subscriber can hold a single permanent retirement account number (PRAN) with one of the three central record keeping agencies (CRAs). Once an account is created, one can put funds into four buckets: equities, corporate debt, government debt, and alternative investments.