Pension Reforms in India

While pension reforms in most countries initially are driven by the budgetary difficulties of supporting costly public pension systems, the longer term problems of ageing of the population and social change, including breakdown of traditional family support for old age income security, are equally important factors.

In India, in the absence of a country-wide social security system (formal pension coverage being about 12% of the working population), while the ageing and social change are important considerations for introducing pension reform in the unorganised sector, fiscal stress of the defined benefit pension system was the major factor driving pension reforms for employees in the organised public sector (Government employees). There has been series of Budget Announcements since 2001-02 underlining need for pension reforms for both Central Government and for unorganised sector, of course, for different reasons.

Introduction of the New Pension System

The Government had introduced the National Pension System (NPS) from 1st January, 2004 through a notification dated 22nd December, 2003, for new entrants to Central Government service, except to Armed Forces. The Government has constituted an interim regulator, thePension Fund Regulatory and Development Authority (PFRDA) through a Government Resolution in October, 2003 as a precursor to a statutory regulator. This Resolution was re-issued on 14th November 2008. The design features of the National Pension System (NPS) are self-sustainability, scalability, individual choice, maximising outreach, low-cost yet efficient, and pension system based on sound regulation. Later, PFRDA Act was passed and published vide gazzate notification dated 19th September, 2013,  provisions of the act came into effect from 1st February, 2014

Establishment of Institutional Framework of NPS

The National Securities Depository Limited (NSDL) has been selected as the Central Recordkeeping and Accounting Agency (CRA) by PFRDA and has commenced operation. The contributions under NPS are now being sent to CRA. PFRDA has appointed three pension fund managers, a custodian and a trustee bank. The accumulation and contribution of subscribers of NPS, who are Central Government Employees, are invested based on the investment guidelines prescribed for the non-government provident funds by the Ministry of Finance.  However, the investment guidelines for NPS for all citizens have been prescribed by PFRDA and are available at their website at

Extension of NPS to State Governments, Autonomous Bodies and Un-organised Sector

NPS has also been extended to new segments (autonomous bodies, State Governments and un-organised sector) and introducing micro-pension initiatives. NPS has been adopted resoundingly by the State Governments

After receiving Government’s approval for extending the NPS to all citizens including the unorganised sector workers PFRDA has rolled out the NPS architecture for all citizens of the country on a voluntary basis from 1st May, 2009. The information on NPS for all citizens is available on the PFRDA’s website at

In order to expand the reach of the NPS countrywide, PFRDA invited the Department of Posts to join the NPS as a POP. Subsequently, on receipt of a formal proposal from the Department of Posts, PFRDA appointed the Department of Posts as a POP in November, 2009. The Department of Posts has been offering NPS and proposes to extend its NPS network to all of its electronically connected branches. This will enable the Department of Posts to make NPS available within the easy reach of all citizens in the remotest corners of the country. Several new initiatives were started like:

Adding a Tier II to the NPS that will serve as a savings account for the pension subscriber with effect from 1st December, 2009

Development of CRA- Lite - a low cost version of NPS meant to enrol people of lower economic strata like self help groups, affinity groups etc

It has also been approved to increase the maximum entry age under the NPS to 60 years, as against the prevailing 55 years to enable more people to join the NPS

Under the NPS for all citizens, a subscriber has the facility to open NPS account at any of the registered branches of the 71 PoPs appointed by PFRDA. The offer document containing details of the NPS, application form for opening NPS account and welcome brochure is available on the website of PFRDA ( as well as the website of other NPS intermediaries. Details of NPS intermediaries including Points of Presence and Pension Funds are also available on the PFRDA website.