The Pension Fund Regulatory and Development Authority (PFRDA) is considering a significant overhaul of India's $175 billion pension industry, potentially allowing pension fund houses to introduce custom-designed investment plans. This move aims to provide more flexibility to investors and boost the growth of the pension sector in India.

Currently, the National Pension System (NPS) offers a limited number of pre-determined investment options across asset classes like stocks, bonds, and alternative investment funds. Customers can choose from these plans based on their individual risk appetite. However, the proposed change would allow fund managers to create bespoke products catering to a wider range of investor preferences and risk profiles.

According to sources familiar with the matter, the PFRDA has already held several rounds of discussions with fund managers regarding this potential shift. If approved, pension funds could advertise a wider range of potential returns and target specific customer groups, such as women or individuals with different risk tolerances. This could involve designing options specifically tailored to these groups, enabling investments to align more closely with their goals.

The PFRDA's initiative is driven by the understanding that greater flexibility and choice can attract more investors to the pension system. While there might be a slight increase in fees to cover the marketing and management of these tailored products, it is viewed as part of a larger effort to upgrade the pension landscape. This includes the raising of foreign investment limits that occurred approximately four years ago.

The PFRDA plays a pivotal role in advancing old-age income security and pension schemes in India. It actively promotes both mandatory and voluntary pension schemes to address the financial needs of retired individuals. Furthermore, the PFRDA oversees the National Pension System (NPS), regulating and guiding these schemes to ensure efficiency and compliance. The objectives of PFRDA include regulating the NPS and other applicable pension schemes, protecting the interests of pension fund users, developing and regulating pension funds, and promoting awareness about retirement savings.

The introduction of custom pension products could significantly alter the way Indians save for retirement. By offering personalized plans, the PFRDA aims to make pension investments more appealing and effective for a diverse range of individuals.