NPS Reforms 2025: The National Pension System is going through a big change, and the Pension Fund Regulatory and Development Authority has brought in new rules that will start from October 1. These changes are meant to make NPS more friendly for private workers and also for gig workers.
Till now the people who joined NPS could only invest in one fixed type of scheme with limited options. The highest equity exposure allowed was 75%. But under the new plan, called the Multiple Scheme Framework, pension fund managers can design many types of schemes, and they can even allow full equity exposure up to 100%.
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This is the first time that NPS will open such wide choices for subscribers. Pension funds can now offer different options for corporate employees, self-employed people, and even those working in the digital economy. Every scheme will have at least two types, a moderate one and a high-risk one where equity exposure can go fully to 100%. They may also bring a low-risk version if they want.
Higher Flexibility and Higher Cost
The flexibility will not come free. Earlier, the charges were very low, between 0.03% and 0.09% of assets under management. Now the cost has gone up to 0.3% per year under the new system. Pension funds that bring in more than 80% of new subscribers into one scheme will also be allowed to charge an extra 0.1% incentive fee. The authority has said that these costs are okay because fund managers will now get the space to bring innovation and give subscribers more choice and diversification.
The new framework will also link schemes with a subscriber’s PAN identity. This way, one person can invest in many schemes but still under one umbrella. Earlier, diversification was limited, but now people can align their pension savings with their retirement and long-term wealth goals.
Pension Funds
For the pension funds themselves, this is a big opportunity. They can now design products with different mixes across all asset classes. This includes equity up to 100%, government securities up to 100%, corporate bonds up to 100%, and even a small 5% in alternative assets like REITs and AIFs. But each scheme will need approval from the authority before launch so that rules are followed.
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One of the most interesting parts is how alternative investments under NPS have already shown strong growth. In Tier-I accounts, there is something called Scheme A, which invests in alternative assets like REITs, InvITs, AT1 bonds, and securitised instruments. This scheme has given up to 25% returns, which is much higher than what the broad equity indices gave. UTI Pension and Tata Pension Funds did very well because they invested more in strong performers like Mindspace REIT and IndiGrid InvIT.
But only Tier-I investors can use Scheme A, and they can put in only 5%. It invests a lot in AT1 bonds, which can lose all value in a crisis, like what happened in the Yes Bank crash in 2020. Even REITs and InvITs, which give exposure to real estate and infrastructure, are affected by cycles and interest rates. So while the scheme shows promise, it also carries volatility.
Participation Outside Government
more private sector people are joining NPS. In the financial year 2025, the total assets under NPS grew 23% compared to last year and reached Rs 14.4 lakh crore. Out of this, non-government subscribers contributed Rs 2.91 lakh crore, which was 29% higher than the year before.
