NPS 3.0: Major changes and what they mean for you

[Diti_Savalia]

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.

[Fitfuture]

NPS 3.0 introduces Multiple Scheme Framework, up to 100% equity allocation, shorter 15-year lock-in, higher fees, and flexible strategies—offering growth potential and choice, but with increased risk and responsibility.

[ankitdas123]

I saw in a video by ET Money that now we can also open multiple PRAN in any of the CRAs under one PAN - is that true? I checked KFintech and I do not see any such option, also no mention of these updates on their respective websites.

I want to open a new PRAN directly through e-NPS to save myself from unnecessary POP fees for every transaction I do. Is that a wise decision?

[Diti_Savalia]

Hello @ankitdas123,

It seems there’s a bit of confusion here. You cannot open multiple PRANs. It’s still strictly one PAN, one PRAN.

Hope this helps!

[Diti_Savalia]

Retirement looks very different today. People live longer, healthcare costs are higher, careers are less linear, and financial needs often continue well beyond age 60. Recognising this shift, the PFRDA introduced revised NPS exit rules in December 2025.

Here’s what those changes mean for NPS subscribers.

1. The 80:20 withdrawal rule

Earlier, subscribers could withdraw only 60% of their NPS corpus as a lump sum. The remaining 40% had to be compulsorily invested in an annuity, which provides a fixed pension for life.

This changes now for private-sector subscribers who have a corpus above ₹12 lakh; they can withdraw up to 80% (60% for government employees) as a lump sum, and only 20% of their corpus is required to be used for an annuity. This gives retirees greater control over their money.

2. You can stay invested until age 85

Earlier, subscribers could remain invested only until 70 or 75, depending on extensions. Under the new rules, the maximum investment age has been increased to 85 years, acknowledging longer working lives and more gradual retirement timelines.

For those who don’t need immediate withdrawals, NPS can now function as a long-term compounding vehicle, allowing the remaining corpus to stay invested longer and eventually pass to nominees.

3. Introducing Systematic Unit Redemption (SUR)

Instead of forcing retirees to withdraw a large lump sum at once, PFRDA has introduced Systematic Unit Redemption.

SUR works much like a mutual fund’s Systematic Withdrawal Plan (SWP), allowing subscribers to redeem a fixed number of units on a monthly or quarterly basis.

This helps:

• reduce market timing risk,
• spread tax liability over multiple years, and
• generate a steady cash flow without exiting NPS entirely.

For retirees worried about withdrawing during a market downturn, this adds a layer of control that NPS previously lacked.

4. Higher limits for 100% withdrawals

For subscribers with smaller NPS balances, the exit rules have become significantly more flexible. Earlier, you could withdraw 100% of the corpus if the total corpus limit did not exceed ₹5 lakh. That threshold has now been raised.

• For corpus up to ₹8 lakh: You can now withdraw 100% of the amount at once. No annuity is required.
• For corpus between ₹8 lakh and ₹12 lakh: Up to ₹6 lakh can be withdrawn immediately. For the remaining balance, you can either buy a traditional annuity or opt for the newly introduced Systematic Unit Redemption (SUR) to receive phased payouts over a minimum period of six years.

Subscribers can now pledge up to 25% of their NPS contributions as collateral to get a loan from banks or NBFCs. In addition, those who renounce Indian citizenship can exit the system entirely and withdraw their accumulated corpus.

5. Succession rules

Under the revised NPS framework, if a subscriber is presumed missing, nominees can receive up to 20% of the accumulated corpus as an early payout. This provision is intended to provide immediate financial relief during long legal or administrative delays, with the remaining amount settled once the subscriber is formally declared deceased under the provisions of the Bharatiya Sakshya Adhiniyam, 2023.

6. Employer contribution tax benefits

From the 2025–26 financial year, employer contribution limits for private-sector employees under NPS have been aligned with those available to government employees.

Earlier, employers could contribute only up to 10% of an employee’s salary (Basic + DA) to an employee’s NPS account. This ceiling has now been raised to 14%, and the entire contribution qualifies for deduction under Section 80CCD(2). Importantly, this deduction is one of the very few tax benefits that remain available even if you opt for the new regime.

For employees in higher tax brackets, this makes NPS one of the most powerful and still underused tax-saving tools available, particularly since there is no upper monetary cap on this deduction.

If you have any questions on how these changes apply to your situation, feel free to reach out.