The National Pension System (NPS) has undergone its most significant overhaul since its inception. Once a rigid pension product, NPS has evolved into a highly flexible, market-linked wealth creation tool.
With the introduction of the Multiple Scheme Framework (MSF) in October 2025 and the revised Exit Regulations in December 2025, subscribers now have unprecedented control over their retirement corpus. This article breaks down the fundamental concepts of NPS, the new "One Person, Multiple PRANs" architecture and the enhanced tax benefits.
1. What is the National Pension System (NPS)?
The National Pension System (NPS) is a voluntary, "defined-contribution" retirement savings scheme designed to enable systematic savings during a subscriber's working life. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Unlike traditional pension plans where the return is fixed (defined benefit), NPS is market-linked. This means your final retirement corpus depends on the returns generated by the asset classes you choose.
Key Features of NPS:
Asset Classes: Subscribers can invest in a mix of Equity (E), Corporate Bonds (C), and Government Securities (G) based on their risk appetite.
Account Types:
Tier I: The primary retirement account. It comes with tax benefits but has lock-in restrictions to ensure disciplined savings.
Tier II: An optional, voluntary savings account. It offers high liquidity (funds can be withdrawn anytime) but carries no specific tax benefits.
Low Cost: NPS is known for having some of the lowest fund management charges globally, maximizing the compounding effect over time.
2. The Old NPS Framework (Before 2025)
To understand the significance of the recent changes, it is helpful to recall the limitations of the previous structure:
Single Account: One Individual (PAN) = One PRAN (Permanent Retirement Account Number) = One CRA.
Rigid Exit: At age 60, a minimum of 40% of the corpus had to be used to buy an annuity (pension plan).
Limited Liquidity: Only 60% could be withdrawn as a tax-free lump sum.
Restricted Choice: Subscribers were often limited to a single investment strategy per account.
3. Key Changes in NPS (Effective late 2025)
3.1 Multiple PRANs Architecture
The "One PAN, One PRAN" rule has been relaxed.
New Rule: An individual can now open multiple PRANs, provided they are with different Central Recordkeeping Agencies (CRAs).
Limit: Since there are three authorized CRAs, a single PAN holder can maintain up to three active PRANs.
Benefit: This allows you to run independent retirement strategies simultaneously (e.g., one conservative PRAN for core pension, one aggressive PRAN for wealth creation).
3.2 The 80% Lump Sum Withdrawal Rule
The mandatory annuity requirement has been significantly reduced, offering greater liquidity.
Lump Sum Limit: You can now withdraw up to 80% of your accumulated corpus as a lump sum upon retirement.
Annuity Requirement: Only 20% of the corpus is now mandatory for purchasing an annuity.
Small Corpus Exemption: If the total corpus is ≤ ₹12 Lakhs, the entire amount (100%) can be withdrawn as a lump sum without purchasing any annuity.
3.3 Multiple Scheme Framework (MSF)
Effective from October 1, 2025, the MSF allows Pension Funds to launch distinct schemes tailored to specific risk appetites.
High-Risk Variants: New schemes allow up to 100% equity exposure (previously capped at 75%).
Customization: You can choose different schemes for different goals (e.g., a "High Growth" scheme for long-term compounding and a "Income Generator" scheme for near-term stability).
3.4 Extended Age Limits
Entry/Exit: Subscribers can join or continue contributing up to the age of 75.
Deferment: Lump sum and annuity withdrawals can be deferred up to age 85, allowing the corpus to compound for longer.
4. Effective Dates Timeline
| Change | Status / Effective Date |
| Multiple Scheme Framework (MSF) | Effective Oct 1, 2025 |
| 80% Lump Sum Withdrawal Rule | Notified Dec 2025 |
| Multiple PRANs (One per CRA) | Implemented 2025 |
| 14% Employer Contribution (Private) | Effective FY 2025-26 |
5. Understanding the Multiple PRAN Structure
NPS accounts are maintained by Central Recordkeeping Agencies (CRAs). Under the new rules, you can open one PRAN with each of the following:
NSDL (Protean) CRA
KFin Technologies CRA
CAMS CRA
Strategic Use Case: The "Core & Satellite" Approach
With multiple PRANs, you can segregate your retirement funds:
PRAN 1 (Safe Core): Invested in a Conservative Scheme (High Debt/Govt Bonds) to ensure basic pension security.
PRAN 2 (Growth Satellite): Invested in a High-Equity Scheme (MSF High Risk) to maximize long-term wealth.
6. Tax Benefits: Old vs. New Regime
NPS remains one of the few tax-efficient tools under the New Tax Regime, especially regarding employer contributions.
6.1 Employer Contribution (Sec 80CCD(2))
The Change: Previously, private sector employees were limited to a 10% deduction.
Current Rule: Both Government and Private Sector employees can now claim a deduction for employer contributions up to 14% of Salary (Basic + DA).
Applicability: This deduction is available under both the Old and New Tax Regimes.
6.2 Comparison Table
| Feature | Old Tax Regime | New Tax Regime |
| Self Contribution (80C) | Eligible (within ₹1.5L limit) | Not Eligible |
| Exclusive Benefit (80CCD(1B)) | Additional ₹50,000 deduction | Not Eligible |
| Employer Contribution (80CCD(2)) | Exempt up to 10% (Basic+DA) | Exempt up to 14% (Basic+DA) |
| Lump Sum Withdrawal | Tax-Free (60% limit*) | Tax-Free (60% limit*) |
Note on Tax: While PFRDA allows 80% withdrawal, the Income Tax Act currently exempts only 60% of the total corpus from tax. The remaining 20% withdrawn as lump sum may be subject to taxation unless tax laws are amended to align with PFRDA regulations.
7. Who Should Adapt to the New Structure?
Aggressive Investors: Those who felt the previous 75% equity cap was too low can now utilize MSF schemes for 100% equity.
Private Sector Employees: Ensure your employer increases the NPS contribution to 14% to maximize tax-free salary components.
Near-Retirees: If your corpus is substantial, the ability to withdraw 80% offers massive liquidity to pay off debts or reinvest in other avenues (like SWP in Mutual Funds) rather than being locked into low-yield annuities.
8. Conclusion
The 2025 reforms have transformed NPS from a "forced savings" product into a sophisticated investment platform.
Flexibility: You are no longer tied to a single strategy or a single fund manager.
Liquidity: The shift from 40% to 20% mandatory annuity solves the biggest liquidity complaint of NPS users.
Efficiency: With the 14% employer deduction, it remains the most tax-efficient salary component for professionals.
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