The Pension Fund Regulatory and Development Authority (PFRDA) has made a significant move to improve the National Pension System (NPS) by enabling banks to independently establish pension funds. This initiative aims to enhance competition and safeguard the interests of subscribers. The PFRDA’s decision, announced recently, introduces a framework that allows Scheduled Commercial Banks (SCBs) to take a more active role in managing pension funds, overcoming previous regulatory barriers and setting clear eligibility criteria.
New Framework for Banks
The newly introduced framework is aimed at bolstering the pension ecosystem by allowing banks to create their own pension funds. This change is anticipated to foster competition among fund managers, ultimately benefiting subscribers. The PFRDA has clarified that the eligibility criteria for banks will be based on their net worth, market capitalization, and overall financial health, in compliance with Reserve Bank of India (RBI) guidelines. Such an approach ensures that only financially sound banks can sponsor pension funds, thereby protecting NPS subscribers’ interests. Currently, there are ten pension funds registered with the PFRDA, and this new framework seeks to increase that number by attracting more banks into the market.
Revised Investment Management Fee Structure
Alongside the new framework, the PFRDA has revised the Investment Management Fee (IMF) structure for pension funds, effective from April 1, 2026. This revision is designed to align the fee structure with current market conditions, subscriber expectations, and international benchmarks. The updated slab-based IMF will include differentiated rates for subscribers in the government and non-government sectors and will also be applicable to schemes under the Multiple Scheme Framework (MSF), with the MSF corpus accounted for separately. Despite these changes, the Annual Regulatory Fee (ARF) of 0.015% that pension funds pay to the PFRDA will remain unchanged. These adjustments are likely to make the NPS more attractive to a diverse range of subscribers, including those in corporate, retail, and gig-economy roles.
Impact on Subscribers and Stakeholders
The PFRDA believes these reforms will cultivate a more competitive and well-regulated NPS ecosystem. By enhancing the quality of pension fund management, the regulator aims to improve long-term retirement outcomes for subscribers and strengthen old-age income security. The introduction of new pension funds managed by banks is expected to provide subscribers with more options and potentially higher returns on their investments. As the NPS expands, with over 9 crore subscribers and assets under management amounting to Rs 15.5 lakh crore as of August 31, these changes are considered vital for sustaining the system’s resilience and efficacy.
New Appointments to NPS Trust Board
In a related development, the PFRDA has appointed three new trustees to the board of the NPS Trust. The new members include Dinesh Kumar Khara, the former chairman of the State Bank of India, Swati Anil Kulkarni, the former executive vice president of UTI Asset Management Company, and Arvind Gupta, co-founder and head of the Digital India Foundation. Dinesh Kumar Khara has been designated as the chairperson of the NPS Trust Board. These appointments are expected to bring valuable expertise and leadership to the NPS Trust, further enhancing governance and oversight of the pension system as it continues to develop.
Digihunt is not a financial advisor and this is not investment advice.