The Pension Fund Regulatory and Development Authority (PFRDA) has constituted a high-level expert committee headed by M S Sahoo, former head of the Insolvency and Bankruptcy Board of India, to draft guidelines and regulations for introducing assured payout options under the National Pension System (NPS). The move aimed at strengthening retirement income security for subscribers.
The initiative, aligned with the provisions of the PFRDA Act, seeks to build a structured framework for post-retirement payouts while retaining the market-linked architecture of NPS, the finance ministry said.
15-member committee
The 15-member committee, chaired by Sahoo, also founder of Dr. Sahoo Regulatory Chambers, comprises experts from legal, actuarial, finance, insurance, capital markets and academic backgrounds. To facilitate comprehensive deliberations, the committee has also been authorised to invite external experts and intermediaries as special invitees.
Designated as a standing advisory body on structured pension payouts, the committee’s mandate includes formulating regulations for assured payout products, including options outlined in the PFRDA consultation paper dated September 30, 2025. A key objective is to enable a seamless end-to-end transition for subscribers moving from the accumulation phase to the decumulation, or payout, phase.
Market-based assurance mechanisms
The panel will deliberate on market-based assurance mechanisms, including novation and settlement concepts, to create legally enforceable guarantees. It will also define operational parameters such as lock-in periods, withdrawal limits, pricing mechanisms and fee structures.
Risk management will be a core focus, with recommendations on capital and solvency requirements, along with an examination of tax implications for payouts that do not require subscribers to exit the NPS framework.
Consumer protection is another priority, with the committee tasked to propose standardised disclosure norms to prevent mis-selling and clearly communicate the nature of assurance and market-based guarantees to subscribers.
On September 30, 2025, the PFRDA had floated three schemes in a consultation paper: desired pension through a mix of step-up systematic withdrawal plan (SWP) and annuity; desired pension benefit along with periodic inflation adjustment; and providing assured desired pension through pension credits.
The desired pension through a mix of a step-up SWP allows subscribers to define their “desired pension,” with a fixed indicative contribution (IC) that remains unchanged unless the subscriber opts to increase their pension target. It requires a minimum accumulation phase of 20 years, with no upper limit.
The desired pension benefit, along with a periodic inflation adjustment scheme, enables subscribers to define a “target pension,” paid in the first 12 months post-retirement, with annual inflation adjustments based on the Consumer Price Index for Industrial Workers (CPI-IW), capped at a 0% floor for negative inflation scenarios, for the period after the first 12 months.
In the scheme for an assured desired pension through pension credits, each credit guarantees a specified pension per month post-maturity for a fixed period. It requires subscribers to provide inputs on the year of retirement, target pension amount and scheme choice (aggressive: 75% equity; moderate: 50% equity; conservative: 25% equity; debt-focused: mix of corporate bonds and government securities).
The move to bolster the market-linked NPS with additional flexibility and options for the subscribers assumes importance as the Unified Pension Scheme (UPS), which offers assured pension, has failed to gain much traction among government employees. Only about 6% of the 22 million central government staff have switched from NPS to UPS.