If you’ve been investing in the National Pension System (NPS) or planning to, there are a few important updates you should know about.
The Pension Fund Regulatory and Development Authority (PFRDA) has announced a major revamp, what’s being called NPS 3.0.
For years, NPS has been known as a stable, tax-efficient and relatively simple retirement instrument. But it also came with some limitations. The cap on equity exposure and a long lock-in period often made it less attractive for younger investors.
With these new reforms, PFRDA aims to change that by making NPS more market-linked, flexible, and accessible for private subscribers.
1. The new Multiple Scheme Framework (MSF)
Until now, NPS investors could open and manage only one scheme account per CRA (Central Recordkeeping Agency). This meant each Pension Fund Manager (PFM) could offer just a single standard scheme for each asset class - equity, corporate debt, government securities, and alternative assets.
Under the new framework, fund managers can now launch multiple investment options such as aggressive, balanced, or conservative schemes. This gives you the freedom to choose how your money is managed or even split your contributions across different strategies under the same PRAN (Permanent Retirement Account Number), based on your goals and risk appetite.
The existing NPS schemes will now be known as “Common Schemes.” They’ll continue for those who prefer the old model, where equity investment is capped at 75%.
Just like when filing your taxes, where you can choose between the old and new regimes, NPS will now offer a similar choice between Common Schemes and the MSF.
2. Flexibility in equity allocation
One of the most significant updates under NPS 3.0 is the lifting of the 75% equity limit.
Until now, NPS subscribers could invest only up to 75% of their contributions in equities under their Tier I account. Starting October 1, 2025, this ceiling will be relaxed, allowing investors to allocate up to 100% of their contributions to equities, ideal for those with a long-term horizon and higher risk appetite.
This makes NPS a far more dynamic option, especially if you’re comfortable with market risks and want to maximize long-term growth, much like you would with mutual funds.
However, the 100% equity option will be available only under the Multiple Scheme Framework. Those who remain in the Common Schemes will continue to have a 75% limit on equity allocation.
3. Change in expense ratio
As mentioned earlier, subscribers can now invest up to 100% in equities, but this flexibility comes with a slightly higher cost.
The Investment Management Fee (IMF), which is the the fee charged by pension fund managers for managing your investments, will now be higher under the new MSF schemes.
The older Common Schemes were known for their ultra-low costs, often below 0.10% of assets under management (AUM). Under the new framework, this could go up to around 0.30% of AUM, in addition to other charges such as custodian, CRA, and NPS Trust charges.
This ten-fold increase makes NPS less about being the cheapest option and more about balancing costs with growth potential.
4. Shorter lock-in period
One of the biggest criticisms of NPS has always been its rigid structure. Investors were generally locked in until retirement (age 60).
Under the new rules, the minimum vesting period has been reduced to 15 years before subscribers can fully switch or exit from a scheme.
This gives you more flexibility to access your funds earlier or make partial withdrawals, depending on your financial needs. However, this change applies only to the new MSF schemes, not the existing Common Schemes.
This makes NPS a lot more practical if you’re someone who wants to build long-term savings but still keep the option to access your money sooner.
Who will these changes apply to?
These reforms primarily apply to non-government (private sector) subscribers, including self-employed individuals.
Government employees will continue under the existing NPS structure for now.
Overall, NPS 3.0 strikes a new balance with a slightly higher cost, but far more flexible and growth potential for long-term investors.