In a significant move to expand India's pension landscape, the Pension Fund Regulatory and Development Authority (PFRDA) has given its in-principle approval for a new framework. This framework will allow banks to independently sponsor and establish pension funds to manage assets under the National Pension System (NPS). The decision aims to remove long-standing regulatory barriers that have limited banks' direct participation in pension fund management.
New Framework to Enhance Competition and Safeguard Interests
The PFRDA stated that its board has approved the new structure with the clear objective of strengthening the overall pension ecosystem. The regulator believes this step will foster greater competition among fund managers, which will ultimately benefit the subscribers by potentially offering better services and returns. Currently, banks primarily act as points of presence (POPs) for the NPS, handling tasks like registration and contribution collection. The new framework will enable eligible banks to move beyond this role and directly manage the pension corpus.
Strict Eligibility Criteria for Banks
Not all banks will be allowed to jump into the pension fund business. The PFRDA has outlined a 'clearly defined' eligibility criteria that interested banks must meet. This criteria will be based on parameters such as the bank's net worth, market capitalisation, and overall prudential soundness, ensuring alignment with the Reserve Bank of India's (RBI) norms. The regulator emphasized that this will ensure only well-capitalised and systemically robust banks are permitted to sponsor pension funds, thereby protecting subscriber interests. Detailed operational guidelines will be issued separately and will apply to both new applicants and existing pension fund entities.
Leadership and Fee Structure Changes
In related developments, the PFRDA also announced key appointments to the board of the NPS Trust. Following a formal selection process, three new trustees have been appointed:
- Dinesh Kumar Khara, former Chairman of the State Bank of India (SBI), who will also serve as the Chairperson of the NPS Trust Board.
- Swati Anil Kulkarni, Executive Vice President at UTI Asset Management Company.
- Dr. Arvind Gupta, Co-founder and Head of the Digital India Foundation.
Furthermore, the regulator has revised the Investment Management Fee (IMF) structure for pension funds, effective April 1, 2026. The new structure introduces differentiated rates for government and non-government sector subscribers.
The IMF for government sector employees under the Composite Scheme, Auto Choice, and Active Choice G-100 options will remain unchanged. For non-government sector subscribers, the fee will be structured on a slab basis:
- It will start at 0.12% for Assets Under Management (AUM) up to Rs 25,000 crore.
- The fee will gradually taper down, reaching as low as 0.04% for AUM above Rs 1.5 trillion.
Implications for the Pension Market
This regulatory shift is poised to reshape India's pension fund management industry. Currently, there are only 10 pension funds registered with the PFRDA. The entry of large, reputable banks as direct sponsors is expected to bring in more capital, expertise, and innovation. For millions of NPS subscribers, this could translate to a wider choice of fund managers and potentially more competitive fee structures over time. The move underscores the government's and regulator's continued focus on deepening the pension market and ensuring a robust retirement savings system for the country.
