Foundations of the PFRDA Act: Complete Notes

This note lays the foundations of the series: the object and scheme of the PFRDA Act, the history of pension reform, the key definitions, the Act's extent and application, and the constitutional framework of pensions.

1. Object, Scope and Scheme

The PFRDA Act, 2013 (Act 23 of 2013, passed in September 2013, in force 1 February 2014) establishes an Authority to promote old age income security by establishing, developing and regulating pension funds and to protect subscribers. It extends to the whole of India (Section 1) and gives statutory form to a defined contribution, funded and portable system, the National Pension System, in place of the defined benefit Old Pension Scheme for new Central Government entrants. Its ten chapters cover the Authority, application, powers, the NPS, intermediaries, penalties and appeals, finance and miscellaneous matters.

2. Pension Reform in India

• Problem: an unfunded, non-contributory Old Pension Scheme whose cost rose from about 0.6 to 1.66 per cent of GDP (1993-94 to 2002-03), and no pension for most workers.
• Reform: Project OASIS; a High Level Expert Group (2001 to 2002); the Interim PFRDA (resolution of 10 October 2003); and the notification of 22 December 2003 making the new system mandatory for Central entrants from 1 January 2004 (except the armed forces).
• Legislation: an ordinance (2004), Bills of 2005 and 2011, and the 2013 Act.
• Expansion: States; all citizens (2009); NPS Lite and Swavalamban (2010); corporates (2011); Atal Pension Yojana (2015); NPS Vatsalya (2024); Unified Pension Scheme (April 2025); the Multiple Scheme Framework and new exit rules (2025).

3. Key Definitions (Section 2)

The NPS is the contributory system under Section 20 in which contributions are accumulated in an individual pension account (identified by a PRAN) through points of presence, a central recordkeeping agency and pension funds. A subscriber includes anyone who subscribes to an approved scheme. Intermediaries include pension funds, the CRA, the NPS Trust (the Board of Trustees holding subscribers' assets), advisers, points of presence and others connected with collection, management, recordkeeping and distribution. Other key terms include the Trustee Bank, regulated assets, the Pension Regulatory and Development Fund, the Subscriber Education and Protection Fund and the Securities Appellate Tribunal.

4. Extent and Application (Section 12)

• Applies to: the NPS and any other pension scheme not regulated by another enactment, which must conform to PFRDA's regulations.
• Excludes: statutory provident funds (Coal Mines, EPF, Seamen's, Assam Tea, J&K EPF), insurance contracts, exempted schemes, pre-2004 Central and All-India Services appointees, and State and notified UT employees.
• Opting in: States and UTs may extend the NPS to their employees; the Centre may extend the Act to other schemes; members of excluded schemes may also join the NPS.

5. Pension as a Right

The Constitution defines pension broadly (Article 366(17)), assigns Union and State pensions to List I (Entry 71) and List II (Entry 42), puts social security and old age pensions in the Concurrent List (Entries 23 and 24), and directs old age assistance (Article 41). Pension is property (Deokinandan Prasad, 1971; Jitendra Kumar Srivastava, 2013, Article 300A) and deferred pay for past service, not a bounty (D.S. Nakara, 1983). Prospective changes for new entrants, such as the NPS, are policy choices.

6. Related Topics and Provisions

• The Authority: establishment, members and Central Government control
• The National Pension System (Section 20)
• Old Pension Scheme and NPS: the debate
• Evaluation of the Act and the way forward