By Rahul Bhagat
India’s pension industry is entering a defining moment, and there is a bold ambition to expand the National Pension System (NPS) tenfold in five years. The goal may sound audacious, but the building blocks are already in place. For too long, pensions in India have struggled to compete with other savings products. Tax efficiency alone cannot make a retirement product attractive. Savers want choice, flexibility, and trust. The reforms now underway seek to deliver exactly that, reshaping the pension ecosystem for both institutions and individuals.
Choice, not constraint
The launch of the Multi Scheme Framework (MSF) is a game-changer. For the first time, Pension Fund Managers (PFMs) can offer multiple differentiated schemes within NPS. This ends the one-size-fits-all model that has limited appeal for many investors.
Think of a young professional who wants a high-equity growth plan versus a conservative saver who prefers a balanced allocation. Both can now find an NPS product suited to their profile. By mirroring the innovation seen in mutual funds, MSF has the potential to expand NPS beyond its traditional base and engage new demographics.
Incentives that work
Distribution has long been a weak link in NPS adoption. PFRDA is addressing this by revising compensation for Points of Presence (PoPs) — the intermediaries who bring customers into the system. Unless distributors see value in promoting NPS, penetration will remain limited.
PFMs too, are being empowered through a rationalised fee structure. With a higher fee ceiling, fund managers can invest more in technology, research, and service, which ultimately enhances subscriber outcomes. CRA charges have also been adjusted, ensuring operational sustainability across the ecosystem.
Flexibility at exit
The biggest psychological barrier for savers has been the rigidity of exit rules. Here too, reforms are under way. PFRDA is expanding the definition of “exit” to cover new life scenarios, extending continuation up to 85 years, and raising withdrawal thresholds.
Crucially, systematic withdrawal plans — akin to mutual funds — are on the table. This would allow phased payouts, giving retirees predictable income streams instead of forcing lump-sum decisions. Partial withdrawal norms are also being liberalised, with broader eligibility and higher limits. These measures hand more control back to the saver, aligning NPS with global best practices.
Trust and protection
Reforms also strengthen the safety net around pensions. Subscriber wealth is now protected from creditors except where pledged to regulated institutions. Rules for disability, incapacitation, and missing subscribers ensure families are not left stranded. Even minors under NPS Vatsalya will have clear exit provisions on adulthood. These protections build confidence that retirement savings will be secure, transparent, and accessible.
The bigger picture
NPS is evolving from a compliance-driven, tax-saving instrument into a mainstream savings vehicle — flexible enough to suit varied needs and trusted enough to anchor retirement planning for millions.