Reforms aim to improve governance, subscriber protection, and NPS coverage across India
In a major reform aimed at strengthening India’s pension ecosystem, the Pension Fund Regulatory and Development Authority (PFRDA) has approved, in principle, a framework that enables Scheduled Commercial Banks (SCBs) to independently set up and sponsor Pension Funds (PFs) for managing NPS assets. This decision is being seen as the central reform that could transform the pension space, because banks have historically held massive distribution strength but were limited by regulatory constraints in becoming independent pension fund sponsors. PFRDA believes the move will enhance competition among pension fund managers, improve governance standards, and strengthen subscriber confidence.
By allowing banks—trusted institutions with deep reach—to participate directly in fund sponsorship, the regulator expects wider penetration of the National Pension System (NPS) in India. The reform is designed to safeguard subscriber interests by ensuring the framework is tightly regulated and aligned with RBI norms. PFRDA has clarified that detailed eligibility criteria will be notified separately, and the same rules will apply to new and existing pension funds. This reform reflects the growing importance of retirement security in a rapidly formalising Indian economy.
| Item | Details |
|---|---|
| Main Reform | SCBs can sponsor Pension Funds |
| Regulator | PFRDA |
| Objective | Expand NPS, boost competition |
| Key Benefit | Stronger pension ecosystem |
| Status | Approved “in principle” |
SCBs can become sponsors of Pension Funds
Allowing Scheduled Commercial Banks to sponsor pension funds is being positioned by PFRDA as a policy reform with long-term impact. Until now, banks participated in NPS mainly as distribution and service channels, helping subscribers register, contribute, or access related services. However, their entry as independent pension fund sponsors remained restricted due to regulatory limitations. The new framework changes this structure by permitting banks to set up their own pension funds to manage NPS assets. According to PFRDA, this will strengthen competition, leading to improved fund management standards and better service delivery for subscribers.
The regulator highlighted that the pension ecosystem must evolve with the growing aspirations of citizens, especially as the gig economy and private employment sectors expand. Bank-sponsored pension funds could bring stronger scale, wider reach, and institutional credibility to NPS participation. The reform is also expected to reduce concentration risk by allowing more sponsors in the market, improving resilience and ensuring subscriber funds are managed within a robust regulatory framework. PFRDA believes this will improve long-term retirement outcomes and strengthen old-age income security.
| Key Change | What it Means |
|---|---|
| Banks as Sponsors | SCBs can set up PFs independently |
| Earlier Limitation | Banks were restricted to limited NPS roles |
| Expected Result | More competition, stronger ecosystem |
| Target Segments | Retail, Corporate, Gig economy |
| Core Goal | Better retirement outcomes |
Eligibility Criteria based on RBI-aligned norms
PFRDA has clarified that the entry of banks as pension fund sponsors will be guided by strict safeguards. To ensure systemic stability and subscriber safety, the framework will include a clearly defined eligibility criterion based on net worth, market capitalisation, and prudential soundness—benchmarks aligned with Reserve Bank of India norms. This condition ensures that only well-capitalised and financially strong banks are allowed to sponsor and operate pension funds. This approach prevents weak or unstable institutions from entering pension fund management, where the responsibility involves long-term retirement savings of millions.
PFRDA stated that the detailed criteria will be notified separately, and these will apply to both new and existing pension funds, ensuring uniform regulatory standards. The regulator’s intention is to strike a balance between expansion and safety—encouraging participation while maintaining discipline. The move also suggests a strategic push toward institutional trust, as banks are among the most credible financial institutions for many Indians. PFRDA expects the reform will help build a more competitive, well-governed and resilient NPS ecosystem.
| Eligibility Factor | Why It Matters |
|---|---|
| Net worth requirement | Ensures financial strength |
| Market capitalisation | Assures scale and stability |
| Prudential soundness | Aligns with RBI norms |
| Applies to | New & existing PFs |
| Goal | Only strong banks enter PF sponsorship |
IMF revision supports sustainable growth
Alongside allowing banks to sponsor pension funds, PFRDA has introduced another reform focused on cost-efficiency and subscriber protection—revision of the Investment Management Fee (IMF) structure. This change will come into effect from 1 April 2026 and introduces a slab-based IMF model for Non-Government Sector subscribers, while maintaining existing IMF rates for certain government-sector schemes. Under the revised model, the fee decreases as Assets Under Management (AUM) increase, ensuring that subscribers benefit from economies of scale.
This reform aligns with evolving public expectations, international benchmarks, and the objective of expanding NPS across retail, corporate, and gig-economy segments. PFRDA noted that the revised IMF will also apply under the Multiple Scheme Framework (MSF), and MSF corpus will be counted separately. The regulator’s approach indicates that lowering costs over time can make NPS more attractive to non-government participants, many of whom compare pension options with mutual funds and private retirement products. By revising the IMF, PFRDA aims to safeguard subscriber interests and encourage sustainable pension participation for long-term retirement security.
| IMF Slab (AUM in ₹ Crores) | IMF Rate (Non-Government Sector) |
|---|---|
| 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% |
ANI gets AUM share to strengthen outreach
A significant part of PFRDA’s reform package is also focused on expanding outreach and awareness of NPS. While the Annual Regulatory Fee (ARF) payable by pension funds remains unchanged at 0.015%, PFRDA announced that 0.0025% of AUM from this fee will be passed on to the Association of NPS Intermediaries (ANI). The purpose is to support coordinated awareness and financial literacy initiatives under the regulator’s guidance. This step recognizes that growth in pension participation is not only dependent on policies and fund performance, but also on public understanding of retirement planning.
Many citizens still underestimate the need for pensions, particularly in the informal workforce and gig economy, where traditional retirement benefits do not exist. ANI’s outreach role will help build awareness through campaigns, workshops and engagement drives, ensuring NPS becomes a mainstream retirement tool across India. PFRDA expects ANI-supported initiatives will strengthen subscriber acquisition, improve engagement among existing subscribers, and help pension intermediaries coordinate better. This move signals that the regulator is combining structural reforms with social communication strategies for sustainable growth.
| Fee Type | Details |
|---|---|
| Annual Regulatory Fee (ARF) | 0.015% (unchanged) |
| AUM share to ANI | 0.0025% of AUM |
| Purpose | NPS outreach & financial literacy |
| Implementing body | ANI under PFRDA guidance |
| Expected impact | Higher awareness & participation |
PFRDA strengthens governance with new trustees
PFRDA has also strengthened the governance structure of NPS by appointing three new trustees on the Board of NPS Trust, following its official selection process. These include Shri Dinesh Kumar Khara, former Chairman of State Bank of India; Ms. Swati Anil Kulkarni, former Executive Vice President of UTI AMC; and Dr. Arvind Gupta, Co-Founder and Head of Digital India Foundation and a member of the National Venture Capital Investment Committee under SIDBI’s Fund of Funds Scheme. S
Dinesh Kumar Khara has also been designated as the Chairperson of the NPS Trust Board, giving a strong leadership edge to the board. These appointments matter because NPS Trust is responsible for ensuring governance, compliance, and oversight of pension fund operations and subscriber protections. As NPS continues to expand and reforms bring in new players like banks, governance becomes more critical than ever. PFRDA expects that the trustees will contribute deep experience in financial leadership, asset management, and policy innovation, helping NPS Trust remain robust and transparent. Strong trusteeship is essential to build long-term subscriber trust, which is the foundation of any pension system.
| Trustee Name | Background | Role |
|---|---|---|
| Dinesh Kumar Khara | Former SBI Chairman | Chairperson, NPS Trust Board |
| Swati Anil Kulkarni | Former EVP, UTI AMC | Trustee |
| Dr. Arvind Gupta | Digital India Foundation | Trustee |
PFRDA Reforms Announced (January 1, 2026)
| Reform | Key Impact | Effective |
|---|---|---|
| SCBs can sponsor PFs | Banks can set up independent pension funds | Framework approved in principle |
| IMF revised | Slab-based fee for non-govt subscribers | 1 April 2026 |
| ANI gets AUM share | Outreach & financial literacy campaigns | Announced Jan 1, 2026 |
| New trustees appointed | Stronger governance of NPS Trust | Announced Jan 1, 2026 |
