The Pension Fund Regulatory and Development Authority (PFRDA) has announced significant changes for National Pension System (NPS) subscribers who had previously chosen Scheme A under Tier I (Active Choice). The regulator will merge Scheme A with Schemes C (corporate bonds) and E (equities) to modernize the investment framework and improve long-term retirement outcomes. This strategic decision is aimed at providing a more diversified and efficient management of retirement savings, aligning with developing market practices.
Rationale Behind the Merger
In a communication dated December 13, 2025, the PFRDA stated that the merger is based on an extensive review of Scheme A’s structure and performance. The analysis identified limitations, such as a relatively small corpus and limited investment options, which hindered diversification and operational flexibility. By merging Scheme A with the larger Schemes C and E, subscriber funds will benefit from broader and more liquid portfolios. This integration seeks to align investments more closely with long-term retirement goals, offering improved growth and stability opportunities for subscribers.
Benefits for NPS Subscribers
The PFRDA has outlined several benefits for NPS subscribers as a result of the merger. Firstly, this integration will improve diversification and stability. Contributions previously allocated to Scheme A will now be part of larger pools under Schemes C and E, thus reducing concentration risk. The larger schemes are expected to provide improved risk-adjusted returns, allowing for enhanced portfolio management flexibility and more consistent long-term performance. Additionally, subscribers will experience increased liquidity, as assets that were once subject to longer lock-in periods will now be managed in schemes that provide easier access to funds. This change aligns the NPS investment framework with recent SEBI-led reforms and modern asset classification standards.
Transition Options for Existing Subscribers
To ensure a smooth transition, the PFRDA is offering existing Scheme A subscribers a one-time opportunity to switch their accumulated corpus to any asset class of their choice. This switching window will remain open until December 25, 2025, enabling subscribers to move their funds without incurring additional costs. The switch can be made in accordance with existing NPS guidelines. Subscribers who do not utilize this option within the designated period will have their investments managed under the newly merged structure.
Investment Choices and Future Reforms
Within the NPS common investment framework, subscriber contributions are spread across four asset classes: Equity (E), Corporate Bonds (C), Government Securities (G), and Alternate Assets (A). Scheme A was originally designed to provide exposure to alternative investments, including Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and other structured products. This merger is part of broader reforms intended to modernize the NPS ecosystem, which includes broadening the permissible investment universe and simplifying the scheme architecture. The PFRDA encourages subscribers to assess their asset allocation carefully and use the switching window to realign their retirement strategies effectively.
Digihunt is not a financial advisor and this is not investment advice.