Recently, there have been a flurry of reforms in the National Pension System (NPS) space. One of the most significant ones is the introduction of the Multiple Scheme Framework (MSF), where pension fund managers have been allowed to float their own schemes. What is the purpose of launching MSF?
Prior to launching MSFs, we collected information from the ecosystem and reached out to different stakeholders to understand what was already there. MSF is more about implementing the existing thought processes into action. It’s important to recognise that there are not enough intermediaries in India who are going to different sub-sections of the population and conveying the message (of the importance of investing for retirement) and bringing them into NPS.
NPS is not only for government employees. Probably, that was the thinking earlier. We are now moving from the government to the non-government segment and addressing the needs of a larger working population, maybe around 500-600 million people. That is what this bold reform is about.
MSF has the single goal of bringing the maximum people from the non-government sector into NPS.
NPS already had Tier I and Tier II accounts (now known as common schemes) but awareness about NPS is still low. In fact, the NPS uptake by corporates is not much. Will the introduction of multiple schemes under MSF create confusion among takers?
There are two parts to this. One, until now, we did not have a dedicated motivated sales force from the point of view of geographical reach, and even for the social sub-segments and the large informal strata of society within urban cities.
For instance, we probably have a set of 4-5 people helping us in various ways in our domestic lives. Have we even questioned what is it that they are doing to save for their retirement years? That has not been addressed.
Two, PFRDA has been coming out with certain schemes, which on the face of it look simple, but if you were to go into something called the active (choice), understanding what all you are expected to do before finalising the scheme is very complicated. How many people in India can choose what percentage of their money should go into equity, government debt, corporate debt, and then also something called alternate investment funds (AIFs). People don’t even know what AIF means. The (MSF) schemes by pension fund managers (PFMs) will be much simpler to understand.
We are also very clear that certain guardrails are needed to ensure that schemes are not mis-sold. That is something which we will continuously monitor.
The need for PFMs to carry the message (of saving for retirement) and get their entire distribution network to be working more actively is what we are talking about. So far, the outreach was limited.
So, is it more about the distribution outreach of the PFMs or about simpler schemes?
Both, but distribution is primary. Without a distribution network, no financial product can be sold.
Let me take you back 15 years. When I was at Sebi (capital markets regulator Securities and Exchange Board of India) and I saw mutual funds, they were few and far between. Today, those same mutual funds have reached a particular level of popularity and reach.
We want that even before you buy a mutual fund, you should be in NPS. It lasts you for 15-20 years, which makes it more important.
People meet a lot of their needs, such as funding an education or buying a television or a white good, by withdrawing from their mutual fund. But we would not like anybody to withdraw their money from NPS to meet such temporary needs. NPS also allows partial withdrawal, but these are highly restricted and monitored.
I think even financial planners would tell you that you must have a pot called a pension pot, which lasts you for your lifetime and you should not disturb that pot very often. That’s what NPS is and PFMs need to take that message to the larger population.
1 November 2025
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Not many in India can choose what percentage of their money should go into government and corporate debt, equity, or even AIFs. The (MSF) schemes by pension fund managers will be much simpler for them to understand
On withdrawals, MSFs have a minimum vesting period of 15 years, subject to the option to exit at age 60 or at the time of retirement. NPS common schemes (Tier I and Tier II) also allow partial withdrawal in three years. When the financial planner community talks retirement, it typically thinks 30 years. So, do you think the reduction in the exit period and early partial withdrawals is feasible for the retirement goal?
Everyone’s requirement is different. Today we have people who work for 15 years and then don’t want to look at a 9-to-5 job but want to do things or work differently. Even at 60, few people want to stop working.
We are tailoring products for different needs. That is what these schemes are all about. Yesterday, we said you can only take your money out at 60. Now the retirement age of 60 may be applicable to the government (employees), but not to a vast number in the private sector and for people who are on their own.
What we are saying is that 15 years is the vesting period. It has nothing to do with retirement. ‘Keep your money undisturbed for 15 years and see the power of compounding’ is the message we would like to convey.
So, in a sense, it is not for retirement per se because if you withdraw at 45 or 50 and use it for some other purpose, the retirement goal from a financial planner’s viewpoint gets diluted. Is that a concern?
We do not expect people to get out of the system just because 15 years are over. There are several plans and schemes (through which) we expect people to continue to remain in NPS all the way up to 75, which is what is permitted today. In fact, there is an amendment on the anvil where you can remain in NPS even till 85.
We expect that having seen the benefit of keeping your money invested for 15 years, you will not leave the system, but will, in fact, put your money in for another 15 years. It’s about allowing people to plan their life in the way they think is best.
We will also have schemes which keep you bound for 25 years. MSF schemes are for 15 years, but common NPS schemes go up to 60 and more.
Some PFMs have already come out with (MSF) schemes meant for people approaching retirement. The expectation is that persons between 45 and 55 years will come in. Also, such people (in this age group) accumulate a certain amount of wealth. We will see that wealth grow when they choose to exit the scheme, between 65 and 75 years.
They will have that much more wealth to meet other needs such as health that come up at that time.
PFRDA has also put out a consultation paper on pension schemes that is open for feedback. Could you shed some light on that?
We continuously hear of annuities (products that give pension in the form of regular cash flow) not being really customer friendly.
In many developed countries, there is this philosophy that if you are not mandated to save in a pension scheme, you are also not mandated to buy an annuity. We are at the ‘Viksit Bharat’ stage and expect that 20 years from now, we should have schemes which look similar to what developed nations have today. Therefore, we are looking at providing alternatives.
It’s about giving choice in the decumulation phase, which is when you convert your corpus into an income stream.
Also, today we have annuity, but people seem to think that the return on their investments is poor. Why is it that this part of the industry has not developed to provide more products?
Through this consultation paper, we are opening a debate on whether we can have other income-yielding products as an alternative to annuity.
Until now, NPS depended on insurance companies for annuity products. Will the new products come under NPS?
That is the aim. (Insurance) Annuity is linked to life. A lot of people may not want something linked to their death. I may choose something for five years, 10 years, 15 years, or decide to buy multiple products as I go along. Even at 70 or 75, I should be able to buy an income-yielding product for the next 10 years. It is about providing competitive financial products in this phase of life.
Annuities are there, but can we look at other products which can bring in the inflation shield? Annuities, typically, do not provide that. The innovation in one of the products that we have put out is that you will be able to have the same standard of living in each subsequent year because you have bought into a pension product that is also bringing in inflation indexation.
A lot of our ideas came from the Unified Pension Scheme (UPS), including the provision of an inflation-indexed stream of pension. If that is available to the government sector, why can’t we try and create it for the non-government sector?
We should be able to come out with products that PFMs can offer.
Returns from insurance annuities are said to be poor. What about the returns from annuities under NPS?
(Insurance) Annuities are made based on certain boundaries drawn by the regulations of the Insurance Regulatory and Development Authority of India (Irdai). We should not blame annuities because they are a product of those set of rules. When you link payments to an uncertain event of life, there’s bound to be various other costs because the service provider must take care of a lot of uncertain and unforeseen events, longevity risk being the most important.
Our understanding is that the returns (from NPS annuities) will be higher because the costs are much lower. The moment you move away from certain bindings (like keep life out of it), that uncertainty goes, costs come down.
Globally, every jurisdiction provides some tax incentive for long-term and pension savings. The introduction of tax incentive for NPS under the new tax regime would certainly help from the customer’s long-term savings point of view
The government is pushing for the new tax regime (NTR), in which there are fewer tax deductions for NPS. Would you want a larger tax incentive for NPS under NTR?
Globally, every jurisdiction has some tax incentive for long-term savings and pension savings.
Tax incentives are linked to the larger development of the economy because long-term savings go to long-dated government papers (securities) of, say, 35-55 years. Long-dated G-secs are almost entirely bought by pension and insurance funds.
The introduction of tax incentives under the new regime should be linked to the fact that the savings are channelised to productive areas, and PFRDA can play a role there.
It would certainly help (to have a larger tax incentive for NPS under NTR) from the customer’s long-term saving point of view as well as from the perspective of the economy.
You said MSF will target non-government employees. Is NPS changing its focus from government to non-government because of the introduction of UPS?
It’s not linked. UPS gave us an insight into how income-yielding products can be created. Atal Pension Yojana (APY) is another important learning for us. It has great outreach and that has encouraged us to use distribution networks for a wider NPS outreach through banks, service centers, digital distribution channels or platform workers.
UPS is nothing but NPS-plus, but there’s a choice to take the entire amount to NPS (there is a provision for a one-time switch from UPS to NPS for those who opt for UPS within the stipulated timeline of September 30, 2025, but then they can’t switch back to UPS). That’s a decision which each person may take at some subsequent stage of their life.
So, for you, is it UPS or NPS?
I am not a sort of a government employee anymore as I had to technically take VRS, but I come under the old pension system.
But if I weren’t, I would have certainly gone for UPS because of the fact that people are living longer and the flow of a steady pension income that is inflation-indexed will always hold me in a better state.
Is there any new reform on the anvil?
We are trying to bring in the entire (age spectrum), with NPS Vatsalya to income-yielding pension. So, you are talking about 50-60 years, or maybe a longer period, of engagement with the NPS. It’s available across your lifespan and that’s where the tagline, NPS Zaroori Hai, comes in.
We still have one more thought, where we are thinking how do we make the transition from NPS from myself to my kith and kin as a succession plan. We are talking to some of the people who have experience in these products that we should bring in the concept of a succession plan, whether it is a Will or some other product, through NPS.
Today, we have an excellent digital backbone. So, the central recordkeeping agencies (CRAs), which are holding all the information, are an ideal vehicle for making sure that all succession plans are also back-ended on to NPS.
Major Announcements
Exit age limit may increase
“There is an amendment on the anvil where you can remain in NPS even till 85.”
More scheme options may be introduced
“We will also have schemes which keep you bound for 25 years.”
Higher annuity returns in NPS than insurance policies
“Returns (from NPS annuities) will be higher because the costs are much lower.”
New succession planning product
“We are thinking how do we make the transition from NPS from myself to my kith and kin as a succession plan.”
nidhi@outlookindia.com
