NPS New Rules: Major changes to the National Pension System! From risk factors to mergers... here are 5 key updates..
New Changes to NPS Schemes: There is crucial news for the millions of salaried individuals and pension subscribers investing in the National Pension System (NPS). The pension fund regulator, PFRDA, has introduced a new and transparent framework for the classification, nomenclature, and presentation of NPS schemes.
The primary objective of this change is to bring uniformity across all pension fund schemes and make it significantly easier for subscribers to compare risks and returns. Let us understand what is set to change in the NPS following this new directive from the PFRDA and how it will impact your investments.
**All NPS Schemes Categorized into 5 Segments**
Under the PFRDA's new framework, all existing and new National Pension System schemes will be classified into five main categories:
1- **Lifecycle-based Schemes:** These will retain options like LC-Aggressive, LC-50 Moderate, and LC-25 Low, where the ratio of equity to bonds adjusts automatically with age.
2- **Active Choice:** Here, investors determine their own asset allocation across equity, corporate bonds, and government securities.
3- **NPS Sanchay:** Designed for the informal sector, this is based on the NPS pattern used in the government sector.
4- **4A Schemes:** This category will specifically include schemes such as NPS Vatsalya, NPS Swasthya, and NPS MSME.
5- **Multiple Scheme Framework (MSF):** Schemes under this category will be defined based on equity exposure.
**New Risk and Equity Model for MSF Schemes**
The most significant change has been made to the schemes falling under the 'Multiple Scheme Framework' (MSF). They have now been classified into five sub-categories based on their stock market investment exposure:
**New Risk and Equity Model for MSF Schemes**
| Category | Equity Investment | Risk Profile |
| :--- | :--- | :--- |
| Category A | 80% to 100% (Aggressive Growth) | Very High Risk |
| Category B | 60% to 80% (High Growth) | High Risk |
| Category C | 35% to 60% (Balanced Growth) | Moderate Risk |
| Category D | 10% to 35% (Conservative) | Low Risk |
| Category E | 0% to 10% (Debt) | Minimal Risk |
A key feature is that a single scheme will no longer be able to invest in the stock market by simultaneously crossing the limits of multiple categories.
**Names of Several NPS Schemes to Change Within 30 Days**
To prevent investors from being misled, the PFRDA has mandated a standard naming format. It will now be compulsory for every MSF scheme's name to include the Fund House Name + NPS + Category Code + Scheme Name. If it is a Tier-2 account, 'Tier 2' must also be added at the end of the name. Pension funds are required to rename their existing schemes in accordance with this new rule within 30 days of the circular's issuance.
**Merger of Schemes: Restructuring Required Within 45 Days**
A pension fund (such as SBI, LIC, or HDFC Pension Fund) can now operate a maximum of only two schemes within the same category under either Tier-I or Tier-II. If a fund house has more than two schemes in a single category, it must merge or restructure them within 45 days. Subscribers will be notified in advance of any merger or modification.
**'Risk-o-meter' and AUM Visible Before Selecting a Scheme**
Investors will now have access to transparent information when selecting schemes on NPS platforms. Before selecting any pension fund, you will see the following details:
Fund house and scheme name
Launch date and past returns
Benchmark and applicable charges
Risk-o-meter and total fund size
Additionally, an 'NPS Scheme Essentials Document' will be issued for every MSF scheme, containing comprehensive information on taxes, withdrawal rules, risk levels, and scheme objectives.
What are the rules regarding scheme changes and closures?
Flexibility to switch funds: Investors can request a change in their pension fund or investment scheme up to two times per financial year. Switching funds or schemes will not alter your original vesting period.
If an MSF scheme is closed, subscribers will be allowed to switch to another scheme. If an investor does not make a choice, they will be automatically transferred to the 'LC 50 – Moderate (10E/55Y)' scheme of the same fund.
What does this mean for general investors?
If your current scheme exceeds equity limits or involves multiple schemes within the same category, your scheme's name might change, or it could be merged with another scheme. For new investors, comparing the risk and returns of different pension funds will become easier and safer than ever before.
Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
