The PFRDA Act: Evaluation and the Way Forward

More than a decade after it came into force, the PFRDA Act can be assessed against its own purpose: to promote old age income security by establishing, developing and regulating pension funds, and to protect the interests of subscribers. This note evaluates the Act's achievements and shortcomings, and sets out the main directions in which the law and the pension system may develop.

1. Achievements

• Statutory foundation: the Act converted an executive arrangement into a statutory system with an independent regulator, legal powers of enforcement and parliamentary accountability.
• Protected features: by writing the basic features of the NPS into Section 20, it guaranteed subscribers an individual account, choice, portability and limits on withdrawal that cannot be removed by regulation.
• Low-cost architecture: the unbundled structure of CRA, pension funds, NPS Trust, Trustee Bank and custodian, with capped charges, has kept the NPS among the cheapest retirement products anywhere.
• Growth: by March 2026, the NPS had about 2.17 crore subscribers and ₹15.95 lakh crore in assets, and the APY about 8.96 crore enrolments.
• Fiscal sustainability: a funded, contributory system for Government employees has reduced the long-term unfunded liability that the Old Pension Scheme would have created.
• Flexibility: the framework design has allowed major innovations, such as the APY, NPS Vatsalya, the UPS and the Multiple Scheme Framework, without amending the Act.

2. Shortcomings

• Coverage: most of the workforce, especially in the informal sector, remains without an adequate pension; India ranked last of 52 systems in the Mercer CFA Institute Global Pension Index 2025.
• Adequacy: small and irregular contributions produce small pensions, and annuity rates and taxation reduce retirement income.
• Legitimacy among employees: the OPS reversion by five States and the need for the UPS show that many Government employees did not accept the risk-shifting of the NPS.
• Regulatory design gaps: no judicial authorisation for searches, no settlement mechanism, no express protection from attachment, and overlap between Sections 19 and 31 on administrators.
• Governance: the close link between PFRDA and the NPS Trust, and the regulator's role in designing and running the system it regulates.
• Regulatory fragmentation: divided responsibility with IRDAI for annuities and with the EPFO for employee retirement savings.
• Law-making by circular: major changes made by circulars receive less parliamentary scrutiny than regulations under Section 53.

3. Directions for Reform

Coverage and adequacy

• Automatic enrolment with an opt-out, and employer contributions, to extend the NPS to private employees, drawing on the UK and Australian experience.
• Schemes for gig and platform workers, linked to the Code on Social Security, 2020 and the Multiple Scheme Framework.
• Integration with a basic social pension floor for those with small accounts.

Decumulation

• Assured payouts within the NPS, as being designed by the expert committee of January 2026.
• Better annuity products, including inflation-linked options, and closer PFRDA-IRDAI coordination.
• Alignment of the income tax treatment of withdrawals and annuities with PFRDA's exit rules.

Legal and institutional

• Separation of the NPS Trust from the regulator.
• Clarity on foreign investment (Section 24) and a considered view on the offshore bar (Section 25).
• Express protection of the corpus from attachment, and a framework for State reversion cases.
• Procedural safeguards and tools such as judicial authorisation for searches and settlement of proceedings.
• Using regulations laid before Parliament, rather than circulars, for major policy changes.

4. Balancing the Act's Objectives

The Act's long title balances three aims: old age income security, the development of pension funds, and the protection of subscribers. In its first decade, development and fiscal sustainability were prominent. The 2025 and 2026 reforms, from the UPS to flexible exits and assured payouts, show a shift towards income security and subscriber protection. The challenge for the next decade is to extend that security to the majority of workers outside Government employment, while keeping the system funded, low-cost and well-governed.

5. Conclusion

The PFRDA Act has given India a sound legal framework for a funded, portable, low-cost pension system. Its weaknesses lie less in what the Act says than in what it leaves to policy: coverage of informal workers, adequacy of benefits, and the interface with tax, insurance and social security law. The Act's flexibility allows these to be addressed, but lasting reform will require both legislative attention and sustained cooperation between the Centre, the States and the financial regulators.

6. Related Topics and Provisions

• Object, scope and scheme of the Act
• Pension coverage in India
• Proposed amendments to the PFRDA Act
• International pension models and lessons for India
• Old Pension Scheme and NPS: the debate