The key reform under is the introduction of the Multiple Scheme Framework (MSF), designed exclusively for non-government subscribers. This change allows non-government subscribers to hold and manage multiple NPS schemes across different Central Recordkeeping Agencies (CRAs) such as CAMS, Protean, and KFintech.
For the first time, subscribers can build a portfolio-like structure within , similar to how investors hold multiple mutual funds. For instance, one could simultaneously invest in HDFC Pension Fund’s Growth Scheme and ICICI Pension Fund’s Wealth Builder Scheme, diversifying strategy and fund management styles within the NPS ecosystem.
A Shift in Equity Allocation
Each MSF scheme will come in two risk variants, i.e. high risk (up to 100% equity allocation) and moderate risk. Every scheme will feature a new risk-o-meter to help investors assess exposure levels before investing.
This development marks a substantial shift from earlier NPS limits, where equity allocation was capped at 75% for non-government subscribers. It effectively opens the door for 100% equity exposure within a regulated retirement framework.
Additionally, Pension Fund Managers (PFMs) are now empowered to create persona-based schemes targeting different professional segments, including self-employed individuals, consultants, and gig workers.
Higher Costs for Investors
With flexibility comes higher costs. The expense ratio for PFMs under the new MSF structure will rise sharply to 0.30% (10x), compared to the earlier 0.03% under the common scheme structure.
Moreover, PFMs will receive an additional 0.10% incentive for three years if they bring in a large share of new subscribers. While this move could encourage more participation and innovation among fund managers, it also increases the cost burden on investors.
Restrictions on Switching and Withdrawals
Existing NPS subscribers cannot shift their current holdings from the Common Schemes to the new MSF structure. The MSF will only accept fresh inflows, meaning investors must open a separate account to participate in the new framework.
Further, remains limited. Subscribers cannot withdraw from MSF schemes before 60 years of age, and switching between one MSF scheme to another is permitted only after 15 years, which effectively acts as a vesting period. This reinforces NPS’s identity as a long-term, retirement-centric vehicle rather than a flexible investment option.
Tax Benefits and Exit Rules
Despite the structural overhaul, tax benefits under NPS 2.0 remain unchanged. Deductions under Section 80C and Section 80CCD(1B) continue as before. The standard rule of retirement at 60 years and the 40% annuity purchase requirement also remain intact.
All existing NPS schemes will continue as “Common Schemes,” coexisting with the new MSF. However, certain proposals are under review, including:
- Increasing the lump sum withdrawal limit to 80% (from 60%)
- Reducing the annuity requirement to 20%
- Allowing exit flexibility after 15 years until age 85
- Expanding partial withdrawals from 3 to 6 instances
If approved, these changes could make the product more flexible and appealing to a wider investor base.
A Complex Evolution
NPS 2.0 represents an ambitious attempt to make the system more dynamic and competitive with mutual funds. Yet, with its layered structure, new expense ratios, and limited liquidity, it also risks becoming harder for average investors to navigate.
As of March 31, 2025, HDFC Pension Fund, the largest PFM managing ₹1.15 lakh crore in NPS assets, reported only ₹5.42 crore in profits, reflecting tight margins of around 7%. The new framework appears designed to improve fund manager economics while maintaining regulatory safeguards for investors.
The result is a more sophisticated but also more complex pension ecosystem, one that demands greater investor awareness and a careful cost-benefit evaluation before opting in.
The securities expressed are for informational purposes only and do not constitute financial advice. Investors should consult a certified adviser before making investment decisions. Finology is a SEBI-registered investment advisor firm with registration number: INA000012218.
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