Last Updated on October 11, 2025 at 10:38 am
The Pension Fund Regulatory and Development Authority (PFRDA) has recently announced a Multiple Scheme Framework in the National Pension Scheme for all non-government subscribers. In this article, we explain the features of this framework.
First things first, there is no change in the current schemes and their rules (as of now). The current schemes will be known as common schemes.
The schemes introduced under the Multiple Scheme Framework will be known as MSF schemes or schemes under Section 20(2). This nomenclature is necessary to make sense of the Circular PFRDA/2025/09/REG-PF/01 Dated 16th Sep 2025 and future communications.
The PFRDA has also sought suggestions for future changes. It is important not to confuse actual revisions and proposed revisions. In this article, we shall only deal with the actual revisions to the NPS Act.
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What is the Multiple Scheme Framework? This is an alternate way of investing in the NPS for non-government subscribers. The schemes in this framework will have different rules compared to the common schemes.
MSF Schemes are distinctly different from common schemes. They can be offered in three variants – high risk, moderate risk and low risk. The high-risk variant can be up to 100% equity (practically 90-95% equity, as all mutual funds must hold some cash!)
Note: The “100%” equity option is only applicable to the MSF schemes. You cannot increase equity exposure in your existing (common) schemes to 100%!
MSF schemes will be offered for both Tier 1 and Tier 2 subscribers. In Tier 2, the fund will be open-ended with an optional lock-in of 15 years. In Tier 1, the fund will have a lock-in period of 15 years*. After this time, the existing exit rules of annuity and lump sum will apply. This may change in the near future, but as of now, the circular clearly mentions that for the MSF schemes,
Exit, withdrawal, and annuitization provisions shall continue to be governed by the PFRDA (Exits and Withdrawals) Regulations, as amended from time to time.
So as of now, it is still 40% annuity and 60% lump sum until modified. This is a link to the draft proposal (20% minimum annuity is one of them)
*Vesting period definition: Minimum vesting period of 15 years, subject to the option to exit at age 60 or at the time of retirement.
The switching rules of the (Tier-1) MSF schemes seem a little strange.
Within 15 years, the MSF scheme subscriber can only switch to common schemes without paying tax! (This need official confirmation from the finance minstry) After 15 years, a switch among MSF schemes is permitted!
Are the NPS Multiple Scheme Framework rules useful? No (at least as per current rules). I find the introduction of the MSF schemes with a vesting period completely baffling.
More “options” in the Tier-2 segment, where the vesting period is optional for MSF schemes, is fine. But we still do not have any clarity on how Tier 2 funds are taxed! Readers point me to various articles discussing tier 2 taxation, but there is no official statement from the finance ministry on this, as far as I know.
Update: Ashal Jauhari points out that Gains from Tier 2 are taxable as per the slab as mentioned in the FAQ document from NPS Trust!
If you want to help freelancers and other digital entrepreneurs, consider making changes to the existing “common” schemes (these are in the proposal stage, as I understand and are welcome).
Why would I invest in an MSF scheme with a 15-year lock-in for a goal other than retirement and buy an annuity from it (40% or 20%)?
The regulator says, “The framework removes constraints on diversification and provides subscribers with a greater scope for aligning their investments with their
evolving retirement and wealth-building goals”. What is the rationale behind excluding government subscribers from this framework? Why can’t they want to do all that the regulator assumes normal subscribers would want to do with MSF?!
Our recommendations
- If you are a current NPS “common” scheme subscriber, there is nothing to be done in response to these changes.
- There is no need to become an MSF subscriber. Choosing the “100% equity option because I am young” is silly.
- If you are not an NPS subscriber, pat yourself on the back and stay away. You do not need it for retirement or for any other need.
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