In a significant move to modernise India's flagship retirement savings programme, the Pension Fund Regulatory and Development Authority (PFRDA) has announced the merger of the alternate assets scheme under the National Pension System (NPS). Scheme A of Tier I (Active Choice) will be consolidated into Schemes C (corporate bonds) and E (equities), marking a pivotal shift in the NPS investment architecture aimed at enhancing long-term outcomes for subscribers.
Rationale Behind the Merger: Modernising the NPS Framework
In an official communication dated December 13, 2025, the pension regulator stated that the decision follows a comprehensive review of Scheme A's structure and performance. The review identified inherent constraints, including a relatively small corpus and limited investment avenues, which hampered diversification and operational flexibility for fund managers.
By integrating Scheme A into the substantially larger and more liquid portfolios of Schemes C and E, PFRDA aims to ensure that retirement savings are managed in a more diversified, efficient, and future-ready manner. This alignment with evolving market practices and SEBI-led reforms is expected to create a more robust framework for building retirement wealth.
What This Means for NPS Subscribers: Key Advantages
The merger is designed to directly benefit subscribers through several key improvements in their pension fund management.
Enhanced Diversification and Stability: Contributions previously allocated to the niche Scheme A will now become part of the vast pools of corporate bonds and equities. This drastically reduces concentration risk associated with smaller, alternative asset portfolios.
Potential for Improved Returns: The larger scale of Schemes C and E allows pension fund managers greater flexibility in portfolio management, which can support more consistent, risk-adjusted returns over the long investment horizon typical for retirement planning.
Increased Liquidity and Flexibility: Assets that were subject to longer lock-in periods under the alternate assets umbrella will now be held in schemes with easier liquidity. This simplifies processes for partial withdrawals, switches, and eventual exits for subscribers.
One-Time Switch Option for Existing Scheme A Subscribers
To facilitate a smooth transition, PFRDA has provided a crucial one-time opportunity for existing Tier I subscribers of Scheme A. They can choose to reallocate their accumulated corpus to any other asset class of their preference.
The switching window is open until December 25, 2025. Subscribers can move their funds according to existing NPS guidelines and without incurring any additional cost for this special switch.
It is critical for investors to note that if no active choice is made within this stipulated period, their investments will be automatically managed under the new merged framework with Schemes C and E.
Broader Context: Part of Ongoing NPS Reforms
This merger is not an isolated change but part of a series of reforms approved by PFRDA to modernise the entire NPS ecosystem. The regulator's broader agenda includes expanding the permissible investment universe, improving portfolio diversification, and simplifying the scheme architecture. The ultimate goal is to empower subscribers to build more resilient retirement savings that can withstand market volatilities over decades.
The PFRDA has advised all affected subscribers to carefully review their current asset allocation in light of this change. Those wishing to realign their retirement strategy according to their personal risk appetite are encouraged to proactively use the switching facility before the December 25, 2025 deadline.
