NPS reforms: PFRDA allows banks to set up pension funds, revises fee norms
At the heart of the overhaul is a decision to allow Scheduled Commercial Banks (SCBs) to independently set up Pension Funds for managing NPS assets.
- Jan 1, 2026,
- Updated Jan 1, 2026 3:45 PM IST
In a landmark move set to redefine India’s pension landscape, the Pension Fund Regulatory and Development Authority (PFRDA) has approved a sweeping set of reforms aimed at strengthening the National Pension System (NPS), broadening fund management participation, and enhancing governance and transparency.
At the heart of the overhaul is a decision to allow Scheduled Commercial Banks (SCBs) to independently set up Pension Funds for managing NPS assets — a major structural shift from existing norms that had constrained bank participation. PFRDA said the initiative will deepen competition, encourage innovation, and strengthen fiduciary oversight in the pension sector.
Only well-capitalised and financially robust banks will be permitted to sponsor Pension Funds under the new framework. Eligibility will depend on parameters such as net worth, market capitalisation, and prudential soundness, aligned with the Reserve Bank of India’s (RBI) norms. The detailed eligibility criteria and operational guidelines are expected to be notified soon and will be applicable to both new entrants and existing Pension Funds.
NPS governance
To reinforce oversight and governance, PFRDA has also reconstituted the Board of Trustees of the NPS Trust, inducting three distinguished professionals after a rigorous selection process.
The new trustees are Dinesh Kumar Khara, former Chairman of the State Bank of India; Swati Anil Kulkarni, former Executive Vice President of UTI Asset Management Company; and Arvind Gupta, Co-Founder of the Digital India Foundation and a member of SIDBI’s Venture Capital Investment Committee.
Khara has been designated as the Chairperson of the NPS Trust Board, a move expected to bring stronger governance and fiduciary accountability to India’s Rs 11-lakh-crore NPS ecosystem.
Revised NPS fee framework
In another major development, PFRDA has revised the Investment Management Fee (IMF) structure for Pension Funds, effective April 1, 2026. The move seeks to align India’s pension cost structures with global benchmarks while protecting subscriber interests.
The new IMF introduces a slab-based, differentiated fee regime for Government and Non-Government sector subscribers. While government sector rates remain unchanged, the non-government sector will see a graded fee structure:
Slabs of AUM (Rs Crore) IMF Rate Up to 25,000 0.12% 25,000 – 50,000 0.08% 50,000 – 1,50,000 0.06% Above 1,50,000 0.04%
This structure will also apply to schemes under the Multiple Scheme Framework (MSF), with each corpus counted separately.
The Annual Regulatory Fee (ARF) remains unchanged at 0.015% of assets under management (AUM), of which 0.0025% will be channelled to the Association of NPS Intermediaries (ANI) to fund nationwide awareness and financial literacy programs under PFRDA’s guidance.
PFRDA Chairperson Deepak Mohanty said the reforms mark a “strategic evolution” in India’s pension architecture. “The measures aim to create a more competitive, well-governed, and resilient NPS ecosystem that reflects the aspirations of a new India,” he noted.
Other rules
PFRDA has amended NPS withdrawal and exit rules, effective December 2025, to enhance flexibility for non-government subscribers under All Citizen Model and Corporate Sector (CS & MSF). Key changes reduce mandatory annuity to 20%, allow loans against corpus, and remove lock-in periods.
Key exit rules
No lock-in; entry/exit age up to 85 years. Normal exit vesting: 15 years or age 60 (All Citizen) or superannuation (Corporate).
Normal Exit (Non-Govt): Corpus Options ≤ ₹8L 100% lump sum, SLW, or SUR ₹8-12L ≤ ₹6L lump sum + balance SUR (min 6 yrs) or 20% annuity > ₹12L ≤ 80% lump sum + ≥20% annuity Premature Exit: ≤20% lump sum + ≥80% annuity (≤₹5L: 100% lump sum). Death: 100% lump sum to nominee (or annuity/SLW/SUR). Post-60 Joins & Continuation
No vesting; same normal exit rules (≤₹12L: 100% lump sum). Automatic NPS continuation post-retirement.
Loans & Partial Withdrawals
Loans: Up to 25% own contribution lien from banks. Partial: ≤25% own contribution; pre-60: 4 times/4-yr gap; post-60: unlimited/3-yr gap. Purposes: house (one-time, no prior home), medical (family), loan settlement.
In a landmark move set to redefine India’s pension landscape, the Pension Fund Regulatory and Development Authority (PFRDA) has approved a sweeping set of reforms aimed at strengthening the National Pension System (NPS), broadening fund management participation, and enhancing governance and transparency.
At the heart of the overhaul is a decision to allow Scheduled Commercial Banks (SCBs) to independently set up Pension Funds for managing NPS assets — a major structural shift from existing norms that had constrained bank participation. PFRDA said the initiative will deepen competition, encourage innovation, and strengthen fiduciary oversight in the pension sector.
Only well-capitalised and financially robust banks will be permitted to sponsor Pension Funds under the new framework. Eligibility will depend on parameters such as net worth, market capitalisation, and prudential soundness, aligned with the Reserve Bank of India’s (RBI) norms. The detailed eligibility criteria and operational guidelines are expected to be notified soon and will be applicable to both new entrants and existing Pension Funds.
NPS governance
To reinforce oversight and governance, PFRDA has also reconstituted the Board of Trustees of the NPS Trust, inducting three distinguished professionals after a rigorous selection process.
The new trustees are Dinesh Kumar Khara, former Chairman of the State Bank of India; Swati Anil Kulkarni, former Executive Vice President of UTI Asset Management Company; and Arvind Gupta, Co-Founder of the Digital India Foundation and a member of SIDBI’s Venture Capital Investment Committee.
Khara has been designated as the Chairperson of the NPS Trust Board, a move expected to bring stronger governance and fiduciary accountability to India’s Rs 11-lakh-crore NPS ecosystem.
Revised NPS fee framework
In another major development, PFRDA has revised the Investment Management Fee (IMF) structure for Pension Funds, effective April 1, 2026. The move seeks to align India’s pension cost structures with global benchmarks while protecting subscriber interests.
The new IMF introduces a slab-based, differentiated fee regime for Government and Non-Government sector subscribers. While government sector rates remain unchanged, the non-government sector will see a graded fee structure:
Slabs of AUM (Rs Crore) IMF Rate Up to 25,000 0.12% 25,000 – 50,000 0.08% 50,000 – 1,50,000 0.06% Above 1,50,000 0.04%
This structure will also apply to schemes under the Multiple Scheme Framework (MSF), with each corpus counted separately.
The Annual Regulatory Fee (ARF) remains unchanged at 0.015% of assets under management (AUM), of which 0.0025% will be channelled to the Association of NPS Intermediaries (ANI) to fund nationwide awareness and financial literacy programs under PFRDA’s guidance.
PFRDA Chairperson Deepak Mohanty said the reforms mark a “strategic evolution” in India’s pension architecture. “The measures aim to create a more competitive, well-governed, and resilient NPS ecosystem that reflects the aspirations of a new India,” he noted.
Other rules
PFRDA has amended NPS withdrawal and exit rules, effective December 2025, to enhance flexibility for non-government subscribers under All Citizen Model and Corporate Sector (CS & MSF). Key changes reduce mandatory annuity to 20%, allow loans against corpus, and remove lock-in periods.
Key exit rules
No lock-in; entry/exit age up to 85 years. Normal exit vesting: 15 years or age 60 (All Citizen) or superannuation (Corporate).
Normal Exit (Non-Govt): Corpus Options ≤ ₹8L 100% lump sum, SLW, or SUR ₹8-12L ≤ ₹6L lump sum + balance SUR (min 6 yrs) or 20% annuity > ₹12L ≤ 80% lump sum + ≥20% annuity Premature Exit: ≤20% lump sum + ≥80% annuity (≤₹5L: 100% lump sum). Death: 100% lump sum to nominee (or annuity/SLW/SUR). Post-60 Joins & Continuation
No vesting; same normal exit rules (≤₹12L: 100% lump sum). Automatic NPS continuation post-retirement.
Loans & Partial Withdrawals
Loans: Up to 25% own contribution lien from banks. Partial: ≤25% own contribution; pre-60: 4 times/4-yr gap; post-60: unlimited/3-yr gap. Purposes: house (one-time, no prior home), medical (family), loan settlement.