Corporate National Pension System: PFRDA tightens rules on mutual agreement, annual reviews, clear investment choices
As per new rules, the PFRDA has now mandated that any decision relating to pension funds and investment choices must be made through a formal and mutual agreement between employers and employees.
- Nov 13, 2025,
- Updated Nov 13, 2025 5:52 PM IST
The Pension Fund Regulatory and Development Authority (PFRDA) has issued fresh guidelines revising how corporate employers and employees under the National Pension System (NPS) can select pension funds and investment options. The circular, dated November 7, 2025 (Circular No. PFRDA/2025/20/PDES/03), partially modifies the regulator’s earlier notification from September 12, 2025. These new rules aim to bring transparency, reduce employer apprehensions, and strengthen decision-making frameworks around NPS investments in the corporate sector.
Corporate NPS model
Under the corporate model of NPS, employers can offer retirement savings benefits to their workforce through two contribution structures:
Joint contribution – where both employer and employee contribute, and
Employer-only contribution – where the company solely funds the employee’s NPS account.
Employees can also make voluntary contributions beyond the mandatory structure and choose from multiple pension funds and investment schemes depending on their risk appetite. An employee-independent option is also available, enabling workers to subscribe and contribute to NPS even without direct employer participation.
These contributions accumulate into a retirement corpus, generating market-linked returns over time, making NPS a cornerstone of long-term financial planning for millions of employees.
Why the PFRDA updated rules
The circular noted that several employers had expressed concerns regarding their role in selecting pension funds and deciding asset allocation, particularly under the joint contribution model. Companies were unsure about the extent of their authority and responsibilities when choosing funds on behalf of employees.
To resolve this, the PFRDA has now mandated that any decision relating to pension funds and investment choices must be made through a formal and mutual agreement between employers and employees.
Key changes introduced
1. Mutual agreement
PFRDA has directed corporates to establish a documented agreement outlining how pension funds and investment schemes will be selected. Importantly, employers must now review the chosen pension fund annually, ensuring that decisions align with predetermined conditions and the fund’s long-term performance.
The regulator reminded corporates that pension investments are long-term in nature and should not be altered based on short-term market volatility or impulsive reactions.
2. Employee consultation
The circular stresses that financial decision-making must include consultation and education. Employers are expected to ensure that employees understand the risks, benefits, and nuances of various NPS schemes before agreeing on investment choices.
3. Employees’ voluntary contributions
Employees are allowed to make voluntary contributions under the Multiple Scheme Framework (MSF) within NPS. This ensures workers with varying risk profiles can select funds that match their financial goals, even within a corporate structure governed by mutual agreement.
4. Grievance redressal pathway
The circular specifies a two-level grievance mechanism:
Employees must first raise issues with the HR department,
They may escalate only if HR fails to act.
This structure aims to streamline dispute resolution within organisations.
5. Operational responsibilities
Corporates must work closely with Points of Presence (PoPs) and ensure all decisions under mutual agreement are communicated to Central Recordkeeping Agencies (CRAs). CRAs cannot make any system-level changes without explicit employer instructions.
What does this mean for employers, employees
The revised guidelines aim to balance flexibility with accountability. For employees, the changes ensure greater transparency, informed decision-making, and protection of long-term retirement interests. For employers, the circular provides clarity on roles, reduces compliance confusion, and offers a structured framework to manage pension fund choices.
In essence, the updates strengthen the corporate NPS model, ensuring that investment decisions—central to employees’ retirement security—are taken collaboratively, reviewed regularly, and backed by clear regulatory oversight.
The Pension Fund Regulatory and Development Authority (PFRDA) has issued fresh guidelines revising how corporate employers and employees under the National Pension System (NPS) can select pension funds and investment options. The circular, dated November 7, 2025 (Circular No. PFRDA/2025/20/PDES/03), partially modifies the regulator’s earlier notification from September 12, 2025. These new rules aim to bring transparency, reduce employer apprehensions, and strengthen decision-making frameworks around NPS investments in the corporate sector.
Corporate NPS model
Under the corporate model of NPS, employers can offer retirement savings benefits to their workforce through two contribution structures:
Joint contribution – where both employer and employee contribute, and
Employer-only contribution – where the company solely funds the employee’s NPS account.
Employees can also make voluntary contributions beyond the mandatory structure and choose from multiple pension funds and investment schemes depending on their risk appetite. An employee-independent option is also available, enabling workers to subscribe and contribute to NPS even without direct employer participation.
These contributions accumulate into a retirement corpus, generating market-linked returns over time, making NPS a cornerstone of long-term financial planning for millions of employees.
Why the PFRDA updated rules
The circular noted that several employers had expressed concerns regarding their role in selecting pension funds and deciding asset allocation, particularly under the joint contribution model. Companies were unsure about the extent of their authority and responsibilities when choosing funds on behalf of employees.
To resolve this, the PFRDA has now mandated that any decision relating to pension funds and investment choices must be made through a formal and mutual agreement between employers and employees.
Key changes introduced
1. Mutual agreement
PFRDA has directed corporates to establish a documented agreement outlining how pension funds and investment schemes will be selected. Importantly, employers must now review the chosen pension fund annually, ensuring that decisions align with predetermined conditions and the fund’s long-term performance.
The regulator reminded corporates that pension investments are long-term in nature and should not be altered based on short-term market volatility or impulsive reactions.
2. Employee consultation
The circular stresses that financial decision-making must include consultation and education. Employers are expected to ensure that employees understand the risks, benefits, and nuances of various NPS schemes before agreeing on investment choices.
3. Employees’ voluntary contributions
Employees are allowed to make voluntary contributions under the Multiple Scheme Framework (MSF) within NPS. This ensures workers with varying risk profiles can select funds that match their financial goals, even within a corporate structure governed by mutual agreement.
4. Grievance redressal pathway
The circular specifies a two-level grievance mechanism:
Employees must first raise issues with the HR department,
They may escalate only if HR fails to act.
This structure aims to streamline dispute resolution within organisations.
5. Operational responsibilities
Corporates must work closely with Points of Presence (PoPs) and ensure all decisions under mutual agreement are communicated to Central Recordkeeping Agencies (CRAs). CRAs cannot make any system-level changes without explicit employer instructions.
What does this mean for employers, employees
The revised guidelines aim to balance flexibility with accountability. For employees, the changes ensure greater transparency, informed decision-making, and protection of long-term retirement interests. For employers, the circular provides clarity on roles, reduces compliance confusion, and offers a structured framework to manage pension fund choices.
In essence, the updates strengthen the corporate NPS model, ensuring that investment decisions—central to employees’ retirement security—are taken collaboratively, reviewed regularly, and backed by clear regulatory oversight.