The latest reform—the Multi-Scheme Framework (MSF)—allows up to 100% equity allocation, compared to the earlier 75% cap. Under MSF, Pension Fund Managers (PFMs) can design multiple schemes across asset classes, offering more tailored investment options to build a retirement corpus.
Alongside this, the Pension Fund Regulatory and Development Authority (PFRDA) is working to improve pension payout choices, currently limited by a narrow set of annuity products.
In this interview with Mint’s Deepti Bhaskaran, PFRDA chairman S. Ramann discusses the shift from centrally designing products to enabling PFMs to innovate, distribute and deliver stronger retirement outcomes for India’s evolving workforce.
The NPS now has about 70 lakh subscribers under the all-citizen model, including corporate NPS. How would you assess its progress so far?
The NPS was originally designed to transition government employees from a defined-benefit to a defined-contribution system, so the early focus was largely on government subscribers. In that context, the participation from the non-government segment may appear modest.
We’ve now drawn a clear distinction between the government and non-government sectors, and our priority is to strengthen outreach and distribution for the latter. Since NPS is a voluntary product, expanding awareness and access is critical—and that’s the task we’ve set for ourselves in collaboration with all stakeholders.
The multi-scheme framework also coincides with a tenfold increase in fund management fees—from 0.03% to 0.3%. Is that meant to fix NPS’s distribution challenge?
Most certainly. While NPS is known for being the lowest-cost financial product, that advantage was also limiting its growth. You can’t be so low-cost that the distribution network ignores you.
The change is meant to provide higher distribution commissions and give pension funds greater ability to reach sub-segments across India. MSF empowers funds to design schemes suited to diverse investor types. It’s not for PFRDA to create one-size-fits-all products and expect distributors to sell them.
It took the mutual fund industry nearly two decades to build its reach, backed by distribution margins five times higher than NPS’s. We want pension funds to innovate within the approved framework, and use the additional commission to expand access and inclusion.
Why not just allow more equity within the current structure, instead of creating multiple schemes that might confuse investors?
In the existing “common schemes”, there’s already an option for 75% allocation in equity. Very few people even know about it. It is fairly daunting for someone to make an asset allocation decision by themselves. It’s easier for a person to accept a pension fund scheme that has tailored equity allocation as per their needs and risk profile.
Customer choice is important and that is really what we are pushing for. Platform workers are a case in point. We would like all pension funds to come out with schemes that can target workers in the digital economy—whether it’s e-commerce, delivery, urban companies, or even security systems. The numbers are huge, and such contractual employees should have NPS. When you make an order in e-commerce, you have the ability to tip the delivery person. We are now looking at whether we can have that tip of ₹20 or ₹50 go into the NPS of that person. So with MSF, it’s really about the choices that pension funds can manufacture.
We are also relooking at our investment guidelines to make them more diverse. But even within the 200 stocks allowed for now, we find that pension funds have rarely gone beyond and are selective.
My point really is that pension funds have the ability to create different risk buckets but have not done it till now because schemes were imposed by PFRDA. We are therefore looking at widening the instruments that exist. This is a separate task we have undertaken and should come to a conclusion fairly soon. We would like more and more products to come in which are long term in nature.
At the end of it, we are looking at delivering much higher returns to our subscribers and allowing more diversification across investment products. Gold and silver is another demand that has come from the pension funds—and they are great hedge instruments. So, we have to look at a wider variety of products.
By reducing the vesting period to 15 years during the accumulation phase, aren’t the older schemes at a disadvantage given their vesting period is still 60 years of age?
Now, 60 years is something that was thought of—or well accepted—in 2004 when the PFRDA started. But today the world has changed, and people are not necessarily looking at 60 as a number. There is much more variety in the professional lives of people. I think it is very important to recognize that and provide them an NPS account that helps them in their respective professions.
We’re essentially saying that 15 years should be the minimum vesting period—not a cap. The idea isn’t to exit after 15 years, but to offer flexibility through multiple schemes that align with individual needs. Each of us has different financial goals, and with varied NPS schemes maturing at different times, one can plan life stages more efficiently while continuing to benefit from returns over time.
You are also considering reforms in the pension or payout phase—including increasing the withdrawal limit and exploring products beyond annuities. What’s the rationale behind this?
We need to think of liquidity requirements because once you have saved money for 15–20 years, you may want to use the money for building a house, for social functions like marriage, for education, or even starting up. So, we have to allow for flexibility in withdrawals from an NPS account. But vesting is important because once you have invested for 15 years and seen the corpus grow, you may well continue with the investment. This is what we are trying to explore.
When the NPS began in 2004, annuities were the only available option for pension payouts, so that’s what we adopted. However, we’re now exploring whether other payout products can be developed. Annuities provide guaranteed income and serve an important purpose, but it’s fair to say that their returns haven’t been very attractive. My view is that the ecosystem should collaborate to create more choices. While a portion can still be allocated to annuities for stability, there should also be alternative products that offer better returns—even if they don’t last a lifetime.
The proposal also mentions allowing customers to buy a guaranteed pension at the accumulation stage itself. How feasible is this, given that such guarantees come at a cost—and in other countries, governments have funded them?
There’s scope to invest in a mix of high-yield instruments for shorter durations and lower-yield, more stable ones for certainty. The goal is to create a balanced portfolio that moves closer to a defined target amount—leveraging market gains during strong phases to cushion weaker ones.
These are products designed for the future, and we are studying how to construct them. Whether government bonds can also be created—like in Brazil, which we studied extensively—is something we are exploring. We would like all related parties to come together and work with us on this. Encouraging individuals to aim for a target pension early in their working lives can be an effective way to instil financial discipline and long-term savings behaviour.
The PFRDA was envisioned as the unified regulator for India’s pension space, but that hasn’t materialised yet. How do you see that mandate evolving?
A lot of products have come up over time, all providing good service to their respective audiences. The real question is: are we providing enough choice for people to plan their retirement? Can I have the flexibility to not put money in EPF and instead in NPS—and vice versa? That’s really where we should be headed. In the end, it’s about giving a better deal to citizens. That’s what all regulation should aim for.
We need to make sure service is proper, providers are accountable, and the market is transparent—where all products are regulated with full disclosures for informed choice.
The government has set up a forum for regulatory coordination and pension product development across retirement schemes. What are your expectations from it?
The expectation—both from the forum and outside—is that every Indian who is working must have a pension account. That’s the overarching goal we’ve set before ourselves. Secondly, we need common definitions and a level playing field. If someone is creating a pension product, it should look similar in structure and features. So, having more products—and making them distinctly from other investment products—is a very important project.
