NPS in 2025: Myths, mindsets and the new flexibility

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NPS is a market-linked retirement account you open in your name. In 2025 it got a big upgrade: a new Multiple Schemes Framework lets fund managers offer different strategy options, and non-government subscribers can now choose up to 100 percent equity under a high-risk plan. These changes apply from 1 October 2025 and make NPS more flexible than before.

Why this matters for long-term growth

Earlier, many treated NPS as a “set-and-forget” product. With the new menu, you can tilt towards equity when you’re younger and reduce risk as you near retirement, all within the same PRAN. In short, NPS now behaves more like a proper retirement wrapper with choice across styles and risk, instead of a single fixed recipe.

Tax breaks that still help

The core tax benefits remain: deductions under Section 80C plus an extra Rs 50,000 under Section 80CCD(1B) for Tier I (mainly under the old regime), and a separate employer-contribution deduction under Section 80CCD(2). At exit, up to 60 percent of the corpus you withdraw is tax-free; the annuity you buy with the balance is taxable as income. Plan with these rules in mind.

Flexibility, not a lockbox

NPS is designed for retirement, but it isn’t a black box. Partial withdrawals are allowed from Tier I for specific needs after three years—up to 25 percent of your own contributions, up to three times. If you need day-to-day flexibility for extra savings, Tier II works like a plain investment account (without the extra tax break).

A simple mindset for average investors

Keep it simple: automate monthly contributions, pick an equity-heavy option when you have many years left, and shift gradually to balanced or debt options as retirement approaches. If you’re a central government employee, new choices like LC75 now allow up to 75 percent equity—use them only if you can handle short-term swings. Review once a year; don’t tinker monthly.

Risks to respect and how to use NPS well

Equity options can fall sharply in bad years; that’s normal. Costs in NPS are low, but outcomes depend on your mix and the manager you pick. At retirement, remember that the annuity income is taxable, so estimate post-tax cash flows before locking in. Use NPS as the retirement core, and keep other goals (like a house or child’s education) in separate, goal-based investments.