Pension investment options expanded under NPS, UPS: What may change for subscribers
The move aims to give government employees flexibility and choice in managing their retirement savings, aligning their investment options with those available to non-government NPS subscribers.
Under the revised framework, Central Government employees can now choose from several investment options, including:
Default option: The pattern of investment as defined by the Pension Fund Regulatory and Development Authority (PFRDA).
- Scheme G: 100% investment in Government securities for low-risk, fixed returns.
- Life Cycle 25 (LC25): Up to 25% equity allocation.
- Life Cycle 50 (LC50): Up to 50% equity allocation.
- Balanced Life Cycle (BLC): A modified version of LC50, where equity exposure starts tapering from age 45, allowing employees to stay invested in equities for a longer period.
- Life Cycle 75 (LC75): Up to 75% equity allocation, tapering gradually from age 35 to 55.
The life cycle (LC) funds follow a “glide-path” approach, where the proportion of investment in equities automatically decreases as the subscriber ages.
This mechanism aims to reduce market risk closer to retirement. For instance, equity allocation falls to around 15% for LC75 and 35% for BLC by age 55.
According to the Finance Ministry, these changes will help employees customize their pension portfolios based on their risk tolerance and long-term financial goals.
The broader range of “auto-choice” options will also allow for diversified and balanced retirement planning.
The National Pension System currently offers both Active Choice, where subscribers decide the asset mix themselves, and Auto Choice, where allocation changes automatically with age. With the inclusion of LC75 and BLC, government employees will now have access to the same range of Auto Choice options as private-sector subscribers.
