NPS Reforms 2025 : What Every Investor Needs to Know
Imagine reaching retirement and realizing that your hard-earned savings are tied up in rules you didn’t fully understand. For years, many NPS subscribers faced just that: locked-in funds, mandatory annuity purchases, and limited withdrawal options that offered little flexibility, even for diligent contributors.
On 16 September 2025, the Pension Fund Regulatory and Development Authority (PFRDA) released an exposure draft proposing sweeping reforms to the National Pension System (NPS). The result was a fundamental shift in how subscribers can access, grow, and manage their retirement savings. While some of the proposed changes have already been confirmed on 1st October 2025, there are some that are still up for discussion.
Here’s an in-depth look at what’s changing, why it matters, and how subscribers can make the most of these reforms.
Let’s start with the confirmed changes
Multiple Scheme Framework (MSF): More Choice, Early Exit
Earlier, subscribers could invest in only one pension fund manager’s scheme under a CRA. Now, the Multiple Scheme Framework (MSF) allows you to invest in multiple schemes simultaneously – just like mutual funds. So you can now diversify across different fund managers, equity-debt mixes, and investment styles within one NPS account. Also historically, NPS required subscribers to stay invested until age 60 to exit. But with the new schemes, subscribers will get an earlier exit option. They may now exit after completing 15 years of contribution under MSF Scheme.
Benefit: Subscribers gain early liquidity, larger control over their money, and flexible income planning in retirement.
- Earlier exit option: Subscribers may now exit after completing 15 years of contribution (instead of being locked in until 60 years of age).
- Higher lump-sum withdrawals: At exit, non-government subscribers can withdraw up to 80% of the corpus in cash, with only 20% mandated for annuity purchase (down from 40%).
- Systematic withdrawals: Retirees can structure phased payouts from their lump-sum corpus, instead of being forced into an immediate annuity.
Equity Limit: Increased Up to 100% Instead of 75%
One of the most important proposed changes in PFRDA’s 2025 draft is the Multiple Scheme Framework (MSF), which lets certain non-government subscribers invest 100% of their NPS corpus in equities. Until now, the maximum was 75%, which often meant your retirement money couldn’t fully benefit from long-term market growth.
Think of it this way: if you’re in your 30s, every rupee you invest now has decades to grow. Even a small increase in returns, thanks to more equity exposure, can make a huge difference by the time you retire. For example, someone with ₹10 lakh in NPS could see their corpus grow to over ₹1 crore in 25 years with a disciplined, high-equity approach – more than what a 75% equity cap would likely deliver.
What you need to keep in mind:
- Can you handle the ups and downs? Markets will fluctuate, and your portfolio might dip in some years. Full equity exposure is only for those who can stay calm and not sell in a panic
- Use time to your advantage: The longer you stay invested, the better you can ride out short-term volatility. Younger investors benefit most, but even older subscribers can use a measured equity allocation
- Don’t put all eggs in one basket: Even 100% equities should be diversified across sectors, large vs small companies, and possibly international markets if allowed
- Check in regularly: Life changes, and so should your portfolio. Make sure your investments still match your goals, risk tolerance, and retirement plans
Practical approach:
Start small. Maybe increase equity allocation gradually rather than moving 100% at once. Run a few “what-if” scenarios, like what if the market dips 20%? What if it grows 12% a year? This way, you can see how your corpus could behave in different situations and make decisions with confidence.
Key takeaway:
- Even a small increase in equity allocation can meaningfully boost your retirement corpus over decades, making 100% equity under the MSF a powerful tool for long-term growth.
- Also, with the new rules you get the option of investing across schemes under the same PRAN instead of having to open multiple accounts.
Low Cost Continues: NPS Remains Cheaper than Mutual Funds
Some worry that MSF could make NPS expensive – but that’s not true.
Even after reforms, total expenses are capped at 0.30%, including fund management fees.
Compare this to 1.5–2% in typical mutual funds, and NPS still stands as an ultra-low-cost retirement vehicle.
Example:
- On a ₹10 lakh investment:
- Mutual fund annual fee ≈ ₹15,000–₹20,000
- NPS fee ≈ ₹3,000
The New NPS Ecosystem: Customised Themes Ahead
PFRDA is encouraging more segment-specific plans, meaning NPS won’t remain a one-size-fits-all product.
- Salaried professionals: Schemes optimised for salary structure & tax efficiency
- Business owners / entrepreneurs: Flexible contribution plans with higher equity focus
- Gig workers / freelancers: Products designed for irregular incomes and flexible withdrawals
Some pension fund managers (like HDFC) have already launched pilot projects for gig-economy contributors – for example, Zomato delivery partners’ customized NPS plans.
Proposed Changes (Under Review as of October 2025)
In addition to confirmed reforms, PFRDA’s draft suggests further steps to make NPS more flexible and user-friendly. These are not yet notified, but if implemented, they’ll significantly change how subscribers manage liquidity and retirement income.
Exit Flexibility & Lower Annuity Requirement
Under the existing NPS, subscribers had to stay invested until 60 and use at least 40% of the corpus to buy an annuity. The draft reform proposes greater exit flexibility and more control at retirement.
- Exit permitted after 15 years of contribution (under MSF schemes).
- At exit: Withdraw up to 80% of corpus as lump sum; only 20% mandatory for annuity purchase.
- Option for systematic withdrawals from the lump sum instead of an immediate annuity.
Example: With a corpus of ₹50 lakh —
- Old rule: ₹20 lakh (40%) had to go into an annuity, only ₹30 lakh could be withdrawn.
- New draft: Just ₹10 lakh (20%) goes into annuity, while ₹40 lakh can be withdrawn upfront or through systematic withdrawals.
Benefit: Subscribers gain early liquidity, larger control over their money, and flexible income planning in retirement.
Benefit: Earlier liquidity, larger control, and flexible income planning in retirement.
Partial Withdrawals Doubled
Life doesn’t pause for retirement. The draft proposes increasing the partial withdrawal limit from 3 to 6 times, spaced at least 4 years apart, allowing up to 25% of your contributions each time.
This gives subscribers access to funds for major life goals – education, home purchase, or emergencies – without derailing retirement savings.
Systematic Withdrawal (SUR):
Monthly Income, On Your Terms
The new Systematic Withdrawal (SUR) option would let retirees structure monthly or annual payouts from their corpus, similar to mutual-fund SWPs. It ensures steady income post-retirement while keeping the remaining corpus invested for market-linked growth.
Loans Against NPS Corpus
The draft allows short-term loans using the NPS corpus as collateral. This offers temporary liquidity while keeping your long-term savings intact.
Caution: Loans reduce compounding power, so they should be a last-resort emergency option, not a regular strategy.
Higher Entry and Exit Age
Another proposed change:
- Join NPS up to age 70 (previously 60).
- Stay invested or defer withdrawals until 85 (previously 75).
This reflects India’s changing workforce—where people start saving later or continue earning longer.
Key Considerations Before You Decide
- 15-year exit and 100% equity apply only to MSF schemes, not old accounts.
- More choice = more complexity – review your options carefully.
- More equity = more risk – ensure your allocation suits your temperament.
- Tax clarity pending: Final taxation rules on lump-sum withdrawals and systematic payouts are awaited.
What You Should Do Now
- Review your current NPS allocation and risk profile.
- Evaluate how new flexibility aligns with your retirement goals.
- Model different scenarios – lump-sum exits, partial withdrawals, or SUR-based income.
- Consult a financial advisor to optimize equity exposure and annuity mix.
- Stay updated – once the proposed rules are notified, adjust your plan accordingly.
The Bottom Line
PFRDA’s 2025 reforms are transforming NPS from a somewhat rigid, government-backed product into a flexible, growth-oriented retirement tool. Subscribers now gain greater control, liquidity, and growth potential – but must balance it with discipline, patience, and risk awareness.
Next step:
Start reviewing your NPS today. Explore how the confirmed and proposed reforms can help you build a smarter, more personalised retirement plan—one that truly works for you, not the other way around.