The Pension Fund Regulatory and Development Authority (PFRDA) has cleared a framework allowing scheduled commercial banks to sponsor pension funds that manage the National Pension System (NPS). The board gave in-principle approval to the plan with the stated aim of strengthening the pension ecosystem, increasing competition and safeguarding subscriber interests.
India pension reform bolsters competition in NPS
Under the new rules, banks may independently set up pension funds after meeting clearly defined eligibility criteria. PFRDA said these criteria will reference net worth, market capitalisation and prudential soundness in line with Reserve Bank of India norms, to ensure that only well-capitalised and systemically robust institutions can act as sponsors.
Regulators framed the move to address long-standing constraints that limited bank participation in the NPS. PFRDA believes broader participation by reputable banks will improve choice for subscribers and contribute to a more resilient market for retirement savings.
PFRDA has also revised the structure for investment management fees charged by pension funds. The regulator will implement a slab-based fee schedule from 1 April, introducing differentiated rates for government and non-government sector subscribers. The new fees will range from 0.04 per cent to 0.12 per cent of assets under management, depending on the AUM slab. Schemes operating under the Multiple Scheme Framework will have their MSF corpus counted separately for fee purposes.
The regulator clarified that fees for government sector employees under the Composite Scheme, or those choosing Auto Choice or Active Choice options, will remain unchanged. The annual regulatory fee payable by pension funds to PFRDA will stay at 0.015 per cent of AUM. Of that amount, 0.0025 per cent will be passed to the Association of NPS Intermediaries to support awareness and financial-literacy initiatives under PFRDAs guidance.
Officials described the fee revision as an effort to align charges with evolving market realities, international benchmarks and the aim of expanding coverage across corporate, retail and gig-economy segments while protecting subscriber returns.
The board also made a number of senior appointments. Dinesh Kumar Khara, former chairman of the State Bank of India, was named chairperson of the NPS Trust Board. Two new trustees join the board: Swati Anil Kulkarni, formerly Executive Vice President at UTI Asset Management Company, and Arvind Gupta, co-founder and head of the Digital India Foundation and a member of the National Venture Capital Investment Committee under the SIDBI-managed Fund of Funds scheme.
Market participants are likely to watch how quickly banks seek approvals and set up pension fund operations. Bank sponsorship could widen the range of investment management capabilities available to subscribers and introduce competitive pressures that may drive innovation in product offerings and service delivery.
PFRDA said it expects the reforms to support improved long-term retirement outcomes and enhanced old-age income security as formalisation of financial services continues to extend across the Indian economy. The authority emphasised that safeguards and prudential criteria will be central to implementation to protect subscriber interests.
Industry groups and pension fund managers will now assess the operational and compliance steps required by banks to qualify as sponsors. The next phases will involve finalising detailed rules and timelines for applications and approvals ahead of the fee changes taking effect in April.
Key Takeaways:
- India pension reform permits scheduled commercial banks to independently sponsor Pension Funds for the National Pension System (NPS).
- PFRDA has set eligibility criteria tied to net worth, market capitalisation and prudential soundness to ensure only well-capitalised banks participate.
- Investment management fees have been revised into slabs from 0.04% to 0.12%, while the annual regulatory fee remains at 0.015% of AUM.
- Former SBI chairman Dinesh Kumar Khara appointed chairperson of the NPS Trust Board, with two new trustees also named.
