New NPS schemes bring more choice but also more complexity

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The National Pension System (NPS) has launched a new framework called the Multiple Schemes Framework (MSF). Until now, each pension fund manager could only run one common scheme in every asset class. Now, they can launch multiple schemes, each with its own strategy, risk level, and asset mix. This means savers can pick plans that lean more into equity, debt, or a blend of both, depending on their comfort.

New launches from fund managers

A few fund houses have already introduced fresh schemes under this setup. UTI Pension Fund has brought in a Wealth Builder plan that allows equity exposure of up to 100 percent, though only in the top 200 companies by market cap. HDFC has rolled out Surakshit Income Fund (Tier-2) that caps equity at 25 percent and leans heavily on bonds. ICICI’s My Family My Future plan is aimed at women, homemakers, and parents, with flexible allocations between equity and debt. While the names sound targeted, these schemes are open to everyone.

How MSF is different from the old setup

The earlier “common schemes” will continue to exist, but investors now have the option to choose MSF schemes for future contributions. Money already invested in common schemes can’t be moved, but contributions going forward can be. Interestingly, funds put into MSF can be transferred back into common schemes without tax issues, giving savers some flexibility. Government employees, however, cannot shift their official NPS accounts to MSF, though they may open a separate one.

Exit rules and withdrawals

One of the biggest changes is the ability to exit earlier. Instead of waiting till 60, investors in MSF schemes can exit after 15 years of vesting. So someone starting in their 30s could technically walk away by their mid-40s. The withdrawal split remains the same: up to 60 percent lump sum tax-free, with 40 percent going into an annuity. Regulators are also considering allowing up to 80 percent lump sum, which would reduce the annuity burden further.

What investors should keep in mind

More choice also comes at a cost. Fund managers can now charge up to 0.30 percent in fees compared with the earlier range of 0.03-0.09 percent. And since these are brand-new schemes, there’s no track record to fall back on. Advisors caution that too many options may confuse savers and that NPS should ideally remain a simple, retirement-focused product. Before signing up for the new plans, investors should assess whether the flexibility outweighs the higher cost and added complexity.