The framework will bring NPS investment options under a common classification system and require pension funds to make changes to some existing schemes.
What is changing in NPS scheme classification?
NPS schemes will now be grouped into five types: Lifecycle-based schemes, Active Choice, NPS Sanchay, Multiple Scheme Framework (MSF) schemes and 4A schemes.
Lifecycle-based options include the existing Life Cycle Aggressive, Life Cycle 75-High, Life Cycle 50-Moderate and Life Cycle 25-Low variants. Their allocation between equity, corporate bonds and government securities changes automatically with the subscriber’s age.
Under Active Choice, subscribers decide the allocation across equity, corporate bonds and government securities, subject to the prescribed limits.
NPS Sanchay is designed for the informal sector and follows a predefined investment pattern aligned with the Government-sector NPS framework. The 4A category covers schemes such as NPS Vatsalya, NPS Swasthya and NPS MSME.
How will MSF schemes be categorised?
The biggest change is for schemes under the Multiple Scheme Framework.
These will now be placed in one of five categories based on their equity allocation:
| Category | Equity exposure | Risk classification |
| A | 80%-100% | Aggressive Growth – Very High Risk |
| B | 60%-80% | High Growth – High Risk |
| C | 35%-60% | Balanced Growth – Medium Risk |
| D | 10%-35% | Conservative |
| E | 0%-10% | Debt |
A scheme cannot have an equity allocation mandate spanning multiple categories.
Why will some NPS scheme names change?
PFRDA has prescribed a common naming format for MSF schemes so that subscribers can identify their category more easily.
The name will include the pension fund’s name, “NPS”, the category code and the scheme name. Tier II schemes will also carry “Tier 2” at the end.
Existing MSF schemes must be renamed within 30 days of the circular.
Will some existing NPS schemes be merged?
Yes. A pension fund can offer a maximum of two schemes in each category under each Tier.
If a fund currently has more than two schemes in the same category, it will have to merge, subsume or restructure them within 45 days. Subscribers must be informed before such changes are carried out.
Schemes whose equity mandate covers more than one category will also have to be reworked or reclassified into a single category.
What information will you see before choosing an NPS scheme?
The framework is designed to make comparison easier before a subscriber selects a pension fund.
NPS platforms will have to display schemes available within the chosen category along with information such as:
- Scheme and pension fund name
- Date of launch
- Historical returns
- Benchmark and benchmark returns
- Applicable charges
- Risk-o-meter
- AUM
Subscribers will first select the type of scheme, followed by the relevant category or asset allocation, and then the pension fund and scheme.Can you switch between NPS schemes?
Subscribers can change between eligible MSF, Lifecycle, Active Choice and NPS Sanchay options, subject to the applicable rules.
A subscriber can make up to two requests per account in a financial year for changing the pension fund, investment scheme, or both.
The change does not restart the account’s original vesting period. The vesting period and other applicable conditions continue to be counted from the original account-opening date.
What happens when an NPS scheme is merged?
Subscribers who hold multiple schemes can choose to merge one scheme into another.
After the merger, the investment will follow the rules of the target scheme, including its charges, withdrawal provisions and other applicable conditions.
If an MSF scheme is wound up, subscribers will be given an option to move to another scheme. Those who do not make a choice will be shifted to the Life Cycle 50 – Moderate (10E/55Y) Scheme of the same pension fund under Tier I.
What documents and disclosures will pension funds need to provide?
Every MSF scheme will have to display a Risk-o-meter and maintain an NPS Scheme Essentials Document.
The document will set out key details such as the scheme’s objective, target segment, asset allocation, risk level, benchmark, vesting period, charges, taxation, risk management and winding-up provisions.
Pension funds can also offer optional services such as income pay-out solutions, annuity-related services and succession or retirement planning, provided these are appropriately disclosed and do not change the scheme’s investment objective or risk profile.
What does this mean for NPS subscribers?
For existing subscribers, the immediate impact will depend on the scheme they hold and whether it needs to be renamed, reclassified, merged or restructured.
For new investors, the key change is that NPS options will be presented in a more standardised format, with equity exposure, risk and other information made easier to compare across pension funds.
PFRDA has also discontinued the distinction between Common Schemes and MSF Schemes. Going forward, NPS schemes will follow the new classification framework.
The framework does not apply to Government-sector NPS accounts.
