Foreign Ownership of Pension Funds and the Bar on Offshore Investment (Sections 24 and 25)

Two short sections of the PFRDA Act deal with the international dimension of pension money. Section 24 limits how much of a pension fund may be owned by foreigners, the statutory counterpart of the FDI limit for the pension sector, and Section 25 forbids pension funds from investing subscribers' money outside India. Both reflect a policy choice that Indian workers' retirement savings should be managed by Indian-controlled entities and invested in the Indian economy. Both have been at the centre of debate about opening the pension sector.

1. Limit on Foreign Shareholding (Section 24)

Section 24, PFRDA Act, 2013

The aggregate holding of equity shares by a foreign company either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India taken in aggregate in the pension fund shall not exceed twenty-six per cent of the paid-up capital of such fund or such percentage as may be approved for an Indian insurance company under the provisions of the Insurance Act, 1938, whichever is higher.

Elements

Whose holdings count: a foreign company, directly or through subsidiaries or nominees, and foreign individuals or associations of persons. All are aggregated, so the limit cannot be avoided by dividing holdings.
The base limit: twenty-six per cent of the pension fund's paid-up capital.
The link to insurance: or the percentage approved for an Indian insurance company under the Insurance Act, 1938, whichever is higher. Parliament tied the pension limit to the insurance limit so that the two sectors would move together.

2. How the Limit Has Evolved

2013: the insurance limit was 26 per cent, so the pension limit was also 26 per cent.
2015: the Insurance Laws (Amendment) Act, 2015 raised the insurance limit to 49 per cent. The pension sector limit under the foreign direct investment policy was raised to 49 per cent in line with it.
2021: the insurance limit was raised to 74 per cent, but the FDI policy for the pension sector remained at 49 per cent.
2025: Parliament raised the insurance limit to 100 per cent, reported as taking effect in early 2026. The pension sector limit under the FDI policy remained 49 per cent.
2026: in April 2026, it was reported that the Government was considering an amendment to the PFRDA Act to raise the pension limit to 100 per cent, together with separating the NPS Trust from PFRDA. Whether it has been enacted should be checked against current sources.

⚠ Note

Read literally, the words "whichever is higher" link the pension limit automatically to the insurance limit. In practice, however, foreign investment is also governed by the Foreign Exchange Management Act, 1999 and the rules and FDI policy made under it, which have kept the pension sector at 49 per cent. The Government's stated intention to amend the PFRDA Act itself, rather than rely on the link, suggests that it regards express statutory change as necessary to open the sector further.

3. The Bar on Offshore Investment (Section 25)

Section 25, PFRDA Act, 2013

No pension fund shall, directly or indirectly invest outside India, the funds of subscribers.

Absolute in form: the prohibition admits no exception in the Act. PFRDA cannot permit offshore investment by regulation.
Direct or indirect: the words "directly or indirectly" catch indirect routes, such as investing through a fund incorporated or operated outside India. PFRDA's investment guidelines accordingly exclude such vehicles.
Funds of subscribers: the bar applies to the money of subscribers invested by pension funds, not to the pension fund company's own capital.

4. Reasons for the Restrictions

Domestic capital: pension savings are a large pool of long-term capital, which policy-makers wished to channel into Indian infrastructure and markets.
Currency and sovereign risk: offshore investment exposes subscribers to exchange rate risk and to foreign legal systems.
Regulatory reach: PFRDA can supervise investments in India far more effectively than investments abroad.
Political compromise: the Bill was passed after years of opposition to opening the pension sector. The foreign shareholding cap and the offshore bar were part of the compromise that secured its passage.

5. The Case for Reform

Diversification: investing only in one country concentrates risk. Many pension systems abroad allow some foreign investment to spread risk across economies.
Capital and expertise: higher foreign ownership could bring capital and pension management expertise to Indian pension funds.
Consistency: the insurance sector, whose products include annuities that NPS subscribers must buy, now permits 100 per cent foreign ownership, while the pension sector does not.
Counter-arguments: domestic investment supports national development, avoids currency risk for rupee liabilities, and retains control of a strategically important sector.

6. Questions Arising

Does Section 25 prevent a pension fund from buying shares of an Indian company with foreign business?

No. The bar is on investing outside India. Shares of an Indian company listed in India are Indian investments, even if the company earns much of its revenue abroad.

Could the Government permit offshore investment through the FDI policy?

No. The FDI policy governs inward investment into India. Section 25 governs outward investment of subscribers' money, and only Parliament can relax it by amending the Act.

⚠ Key point

Section 24 caps aggregate foreign shareholding in a pension fund, including through subsidiaries, nominees, individuals and associations, at 26% of paid-up capital or the limit approved for Indian insurers under the Insurance Act, 1938, whichever is higher. The FDI policy raised the pension limit to 49% in 2015 and has kept it there although insurance moved to 74% (2021) and 100% (2025); an amendment to raise pensions to 100% was reported as under consideration in April 2026. Section 25 absolutely bars pension funds from investing subscribers' money outside India, directly or indirectly.

7. Related Topics and Provisions

Pension funds and the NPS Trust (Section 23)
Investment guidelines for pension funds
Proposed amendments to the PFRDA Act
International pension models