Pension System: The Biggest NPS Makeover Yet

If you have been investing or thinking of investing in the National Pension System (NPS), here are the NPS new rules, effective from October 1, 2025, that you must know because this is not just another policy tweak; it is a big change that is going to impact your retirement plan.

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a new structure that gives you more flexibility, growth potential for your retirement savings, and tax savings if you have a private sector corporate NPS.

Let’s break down everything you need to know about the NPS new rules, from the100% equity allocation option to the new digital onboarding experience, and whether these changes might make your NPS journey smarter if well implemented in your financial planning.

1. The Big One: You Can Now Invest 100% in Equity

Before starting the topic, let’s be clear that there are absolutely no changes in the old NPS, which will now be known as “Common Schemes”. So, if you are an NPS common schemes subscriber, your scheme will continue as it is.

The new NPS will be known as MSF (Multiple Scheme Framework), and for the first time, non-government NPS subscribers can now invest up to 100% of their contributions in Equity under the new Multiple Scheme Framework (MSF).

What This Means:

If you opt for the Multiple Scheme Framework, you can allocate 100% equity allocation. With old NPS / Common schemes, NPS equity exposure will remain capped at 75%, with the balance 25% to be allocated to debt (Corporate debt, Government bonds) and Alternative Investment Funds (AIFs).

Now, with the NPS new rules “MSF”, if your risk profile allows, retirement being a long investment goal, and you have already not opted for “NPS common schemes”, you may consider going all-in on Equity.

But let’s be clear — this also means you will see volatility (more ups and downs) in your portfolio value. So, this option is suitable for those with a high-risk appetite who understand market cycles and won’t panic during downturns.

2. Multiple Scheme Framework (MSF): Build Multiple NPS Strategies

Think of the MSF as the “portfolio buffet” of NPS.

Under NPS Common schemes, you had one PRAN (Permanent Retirement Account Number), which meant one scheme. That was it.

With new MSF, you can hold and manage multiple NPS schemes under one account, across different Central Recordkeeping Agencies (CRAs).

Selected CRAs for NPS Multiple Scheme Framework (MSF)

With the increased flexibility in the new NPS rules, they may look attractive, but I personally believe they will create more confusion.

3. You Don’t Have to Wait Until 60: Exit After 15 Years

A low lock-in period is another significant relief for working professionals planning early retirement.

Under the NPS new rules, you can exit your NPS after just 15 years of investment (for MSF schemes), instead of waiting until 60.

So, if you open an MSF NPS account at 30 and plan to retire at 45 with a minimum vesting period of 15 years, accessing your NPS corpus at 45 is possible – subject to the option to exit at age 60 or at the time of retirement.

However, even if you get the option of early withdrawal with only 15-year vesting (lock-in) period, you’ll still need to invest 40% of your corpus (draft proposal to make it 20%) into an annuity plan, and mind you, switching between MSF schemes is restricted during the first 15 years. In my view, the 15-year vesting (lock-in) period is acceptable, as the NPS is allocated to a long-term retirement goal. However, switching restrictions between MSFs during the first 15 years is a “red flag”.

Note: The “NPS common scheme” exit rule remains unchanged.

Source: PFRDA Circular

NPS New Rules: Easier Onboarding and KYC in this Digital Age

From October 2025, onboarding becomes digital with simplified KYC verification options:

1. Aadhaar-based e-KYC,
2. Video KYC,
3. DigiLocker, or
4. Your bank’s Core Banking System (CBS).

My experience as an existing NPS “common schemes” subscriber:

When I log in to check how NPS behaves with this change, it asks about my interest in opting for the new scheme. To experience the process, I clicked “Yes,” and I found that there is no option to make changes at present. It logged in to the existing old NPS/common scheme, and the use case remains the same. As mentioned above, the old NPS scheme will have no changes.

Understanding the New Withdrawal Flexibility Proposal

While the investment side of NPS has gained some attention, there are also some interesting proposals on the withdrawal and exit rules front.

Here’s how things stand today:

1. At 60: You can withdraw up to 60% tax-free; the remaining 40% must go into an annuity (a scheme that pays you a monthly pension).
2. Partial withdrawals: After 3 years of opening an NPS account, you can withdraw up to 25% of your own contributions for specific goals (education, marriage, home purchase, medical reasons).
3. Small corpus exception:
   • If your total is below ₹5 lakh, you can withdraw 100% at age 60
   • If your total is below ₹2.5 lakh, you can withdraw 100% before 60
4. Premature exit (after 5 years): You can withdraw 20% lump sum, but with 80% you must buy an annuity plan.

What’s coming next:

PFRDA’s draft proposals aim to make withdrawals more flexible:

1. Systematic Withdrawal: Introduction of systematic unit redemption for certain subscribers.
2. Higher lump sum option: The withdrawal limit could rise from 60% to 80%, with only 20% required for annuity (Regulation- 4(a)).
3. Age limit increase: Increase in the age limit for entry into and exit from NPS, with automatic continuation.

4. Vesting Period Adjustments: Removal of the vesting period for normal exit in cases where individuals
5. Exit for Missing and Presumed Dead Subscribers: Special provisions for nominees and annuity purchase option after determination as missing or presumed dead of the subscriber.

Source: Draft proposal

The NPS Taxation

The NPS taxation remains unchanged and is one of India’s most tax-efficient retirement products.

Under the Old Tax Regime

1. Section 80CCD(1): ₹1.5 lakh deduction (within 80C limit).
2. Section 80CCD(1B): Extra ₹50,000 deduction (over and above 80C).
3. Section 80CCD(2): Employer contribution up to 14% of basic pay for Central/ State Government employees and 10% of basic pay for private employees.
4. At retirement: 60% of the corpus withdrawn is tax-free; annuity income is taxable as per your income slab.

Under the New Tax Regime

1. Section 80CCD(2): Employer contribution up to 14% of basic pay for Central State Government employees, as well as for private-sector employees.
2. At retirement: 60% of the corpus withdrawn is tax-free; annuity income is taxable as per your income slab.

It is one of the rare ‘triple E’ products — exempt when you invest, exempt when it grows, and (mostly) exempt when you withdraw.”

Who Benefits the Most from These NPS Reforms?

If you have just started your career, this is your moment, especially if your organization provides corporate NPS.

You can now:

1. Choose 100% equity for long-term growth
2. Leverage compounding for 25+ years
3. Enjoy tax benefits even under the new tax regime

A ₹5,000 monthly contribution for 30 years growing at 10% annually can become ₹1.1 crore by age 60 — compared to ₹38 lakh if you start 10 years later.

Advisor Insight: NPS New Rules 2025

These NPS reforms are among the most progressive I’ve seen in years.

The 100% equity option and Multiple Scheme Framework appear very attractive at first, but with no option to switch between schemes for the first 15 years, I would say this is a red flag.

Here’s my quick suggestion:

1. Don’t jump to 100% equity just because you can: Match your exposure to your comfort level and goals.
2. Keep it simple: Using MSF at this point can make your portfolio complicated. A balanced mix is often more effective than chasing high returns.
3. Be patient during the 15-year lock-in period: It’s designed to keep you invested for long-term, meaningful growth. However, 100% equity exposure and no flexibility to switch if the fund doesn’t perform make the MSF scheme less attractive.
4. Plan holistically: NPS is just one part of your retirement plan — not the whole financial plan. Keep your emergency fund, insurance, medium-term, and other long-term investments separate.

If you are unsure how to structure your NPS under these new rules, it’s wise to talk to a fee-only financial advisor who can help you with personal finance and align your investment options with your life goals.

Conclusion: Your Retirement Must be Tailored To Your Needs

The NPS new rules, effective October 1, 2025, introduce a fundamental change in how Indians can plan for retirement. With 100% equity options, multiple scheme flexibility, reduced vesting periods, and proposed enhanced withdrawal rules, NPS has transformed from a rigid government pension scheme into a dynamic, investor-centric retirement solution.

Whether you’re just starting your career or moving toward retirement, these reforms may give you better control over your pension wealth. The key is to use this flexibility wisely—align your NPS strategy with your risk tolerance, time horizon, and comprehensive financial plan.

Remember, retirement planning isn’t a one-time decision. Review your NPS allocation annually, and making contribution changes must not be overlooked.

For personalized guidance on whether to incorporate these NPS new rules into your unique financial situation, consider working with a SEBI-registered, fee-only financial advisor who can create a comprehensive retirement strategy tailored to your goals.

FAQs: NPS New Rules 2025