India's pension system is at a pivotal moment, needing more choices for subscribers rather than stringent controls, according to the Pension Fund Regulatory and Development Authority (PFRDA). PFRDA Chairman S. Ramann highlighted the regulator's evolving approach, shifting from a centralized design of National Pension System (NPS) products to empowering pension fund managers to innovate and broaden India's retirement coverage.
Reforms on the Horizon
The PFRDA is actively pursuing significant reforms to inject dynamism into the pension ecosystem and accelerate its expansion. This includes engaging in consultations with fund managers to explore allowing them to design and offer customized investment products. This shift could potentially reshape the $175 billion industry. Currently, pension fund managers operate within a tightly controlled framework with pre-set asset allocation models designed to minimize risk. The proposed reforms would grant pension fund houses greater autonomy to design and market tailor-made investment schemes, targeting a wider range of investors with varying risk tolerances and return expectations. This would enable pension funds to offer more diversified options, enhancing their appeal and competitiveness.
Increased Flexibility and Control
The National Pension System (NPS) has already undergone a major upgrade in 2025, combining greater flexibility, digital simplicity, and smarter investment options. This gives savers across India more control over their financial future. A key reform is the new multi-scheme framework, allowing investors to design their own pension mix across multiple funds while retaining NPS's core long-term focus. Previously, investors were limited to allocating up to 75% to equity in a single scheme. Now, they can diversify across four or more funds, choosing allocations in equity, corporate bonds, and government securities according to their goals and risk tolerance. This brings NPS on par with advanced global retirement systems, offering the freedom of a mutual fund, the discipline of a pension, and the security of regulation. Financial expert Dhirendra Kumar has hailed the 2025 NPS revamp as a turning point in India's retirement planning, emphasizing that the reform trusts investor choice, giving savers freedom to design, diversify, and take control of their long-term financial security.
Expanding Investment Choices for Government Employees
The government has also approved the expansion of investment choices under the NPS and the Unified Pension Scheme (UPS) for central government employees. They now have access to two additional "auto-choice" life-cycle funds: LC-75 and Balanced Life Cycle (BLC). This decision aims to provide greater flexibility in retirement savings strategies, aligning government employees' options with those of non-government NPS subscribers. Employees can now choose investment patterns ranging from 100% government securities to up to 75% equity, matching their risk appetite. The "glide-path" feature gradually reduces equity with age, protecting the retirement corpus from market shocks.
Streamlined Withdrawal Processes
The withdrawal process, previously considered a weak link in the NPS, is also being redesigned. New proposals include deferred annuities, systematic lump-sum withdrawals, and customized retirement income plans, allowing investors to personalize post-retirement cash flows. Retirees may soon be allowed to delay annuity purchases until age 75 or draw from their corpus gradually, giving them better control over how and when they access their savings.
Looking Ahead
These reforms signal a move towards a more market-linked and subscriber-friendly pension system in India. By empowering pension fund managers and providing subscribers with greater choice and flexibility, the PFRDA aims to encourage greater participation and ensure a more secure financial future for India's workforce.
