Policy Debates and Reform: Complete Notes

This note brings together the major policy debates surrounding the PFRDA Act: the Old Pension Scheme versus the NPS, the refund of the corpus to reverting States, the state of pension coverage, and the proposed amendments to the Act.

1. The Old Pension Scheme and the NPS

OPS: defined benefit (about 50% of last pay), non-contributory, unfunded, indexed.
Why the NPS: fiscal sustainability, intergenerational fairness, wider coverage, capital formation; notified 22 December 2003, statutory from 2013.
Reversion: Rajasthan, Chhattisgarh, Jharkhand, Punjab, Himachal Pradesh from 2022; an RBI Bulletin paper (September 2023) estimated general reversion could cost up to 4.5 times the NPS.
Central response: no OPS for Central employees; one-time option for posts advertised before 22 December 2003 (OM of 3 March 2023); Somanathan committee (2023); UPS from 1 April 2025 as a funded middle path.

2. Corpus Refund and Centre-State Issues

States join the NPS by notification under Section 12(4). The reverting States sought refund of the corpus; the Centre has stated in Parliament (February 2023, December 2025) that the PFRDA Act and 2015 exit regulations contain no provision for refund to States. The corpus sits in individual pension accounts (Section 20(2)), is held by the NPS Trust for subscribers, and is their property (Article 300A); exit payments go only to the subscriber or nominee. Solutions lie in agreement, amendment, or Article 131 proceedings.

3. Pension Coverage

Need: about one in five Indians aged sixty or more by 2050; a mostly informal workforce.
Figures (31 March 2026): NPS about 2.17 crore subscribers and ₹15.95 lakh crore AUM; APY about 8.96 crore; EPS about 7.98 crore; social pensions about 4.3 crore.
Tools in the Act: duty to promote, education, points of presence, portability, scheme approval (including the MSF for gig workers), capped charges.
Barriers: low incomes, awareness, liquidity needs, fragmentation, adequacy.

4. Proposed Amendments

Foreign investment (Section 24): 74% proposed in 2021; 100% reported in April 2026; not confirmed as enacted.
NPS Trust separation: proposed repeatedly since 2020.
Assured payouts: January 2026 expert committee.
Other ideas: protection from attachment, judicial authorisation for searches, settlement of proceedings, framework for State reversion, alignment with tax and IRDAI rules.
Reform without amendment: APY, Vatsalya, UPS, MSF, exit rules and investment guidelines came through regulations, circulars and schemes, with less parliamentary scrutiny.

⚠ Key point

The shift from the unfunded, defined benefit OPS to the funded, defined contribution NPS in 2004 remains contested; five States announced reversion from 2022, the RBI Bulletin paper of 2023 warned of costs up to 4.5 times the NPS, and the Centre answered with the UPS (2025). The Centre holds that the PFRDA Act gives no basis to refund the corpus to States, because it belongs to subscribers in individual accounts. Coverage has grown (NPS 2.17 crore, APY 8.96 crore in March 2026) but remains limited against rapid ageing. Proposed amendments on FDI and NPS Trust separation await enactment, while most reform has come through regulations and circulars.

5. Related Topics and Provisions

Pension reform in India: the road to the PFRDA Act
The Unified Pension Scheme
Foreign ownership and the bar on offshore investment (Sections 24 and 25)
Evaluation of the Act and the way forward