India’s retirement landscape is abuzz with a series of new developments. Several recent
announcements concerning the national pension system (NPS) and the employee provident fund
(EPF) promise to make retirement products less rigid.
Changes to NPS guidelines
A new Multiple Scheme Framework (MSF) has been introduced under the National Pension System
(NPS), allowing pension fund managers (PFMs) to design and offer more than one scheme across
asset classes. Previously, each PFM could offer only a single common scheme per asset class. Under
the MSF, non-government subscribers will have a wider choice, including high-risk options that can
allocate up to 100% of assets to equity, a significant shift from the earlier 75% cap. The framework
also permits more flexible asset allocation.
The new schemes come with a minimum vesting period of 15 years, after which subscribers may exit at 60 or upon retirement, replacing a structure that
locked funds until 60. For long, the lock-in period was a deterrent. While a 15-year vesting may sound more appealing, the requirement to annuitize 40% of
the corpus—as is currently the case—will not encourage people to take up the NPS. Under the existing scheme, premature withdrawal can be made after
five years, with 80% of the amount annuitized. Hence, there doesn’t seem to be much benefit as made out.
The new schemes make retirement planning more complicated. Ten were launched last month, each with a different asset allocation, making them difficult
to assess. The existing NPS is straightforward; investors decide on allocation or use the auto-choice option. Similar to MFs, investors must evaluate various
NPS schemes based on asset allocation and risk profile, increasing complexity. Choosing a MFs is already daunting; adding the schemes makes investing
harder. The NPS also lacks MF-level data. Basic data, such as rolling returns, isn’t available even to financial advisors.
According to Nobel laureate Richard Thaler’s book Nudge, keeping it simple, easy and automatic encourages more people to take up pension plans.
Reducing the number of plan options in mandatory pension schemes also makes it easier for people to choose effectively. The strength of the existing NPS
lies in its simplicity, disciplined investing, and lock-in—all of which help build a solid retirement corpus.
Tweaks to EPF rules
For years, the EPF played that role. But that is set to change. The Employees’ Provident Fund Organization (EPFO) has made partial withdrawals easier.
Now, up to 75% of the corpus can be withdrawn just 12 months after service (versus 5-7 years earlier). The paperwork to withdraw for special
circumstances, such as unemployment, has also been eliminated.
All these measures have made partial access to EPF easier and faster. The risk with this is that individuals may tend to fall back on the EPF for major goals
such as child education or home purchase, thus putting their retirement savings in trouble.
Withdrawing from the EPF is not recommended as it interrupts the compounding on the corpus (compounding works best when money stays invested for
long periods, as every year’s earnings generate their own earnings. By withdrawing the corpus partially, the timeframe gets shortened, and one will miss
out on the biggest growth that typically comes in the later years.
While all these measures seem to be making retirement schemes more investor-friendly, the need of the hour for investors is to actually focus on creating
the right amount of corpus for retirement. It is widely seen that people are saving for retirement in some form, but the amounts may not be in tune with
what is required on an inflation-adjusted basis. Allowing easy withdrawals may further accentuate the problem, leaving individuals with inadequate
retirement savings.
This is compounded by choice paralysis arising from the presence of multiple schemes. While savvy investors may consider some riskier options, for most
investors, remaining invested in the EPF and choosing simple investments such as the existing common schemes under the NPS can help reach the target
retirement corpus. Stakeholders need to work on bringing back the mindset of retirement security by educating Indians on the importance of long-term
investing. For early retirees, the Pension Fund Regulatory and Development Authority can consider amending exit rules.
The author is a financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra
Published in Mint | By Mrin Agarwal
Date: October 28, 2025