Proposed Amendments to the PFRDA Act

The PFRDA Act has not been substantially amended since it was passed in 2013, although the pension system it governs has changed a great deal. Several changes have been proposed by the Government, by PFRDA and by commentators: raising the limit on foreign investment, separating the NPS Trust from the regulator, providing for assured payouts, and aligning the Act with other laws. This note examines those proposals and the legal questions they raise. Proposals change quickly, so their current status should always be checked.

1. Raising the Foreign Investment Limit

• Present law: Section 24 caps foreign holding in a pension fund at 26 per cent or the limit for Indian insurers, whichever is higher; the FDI policy has kept the pension limit at 49 per cent since 2015.
• Earlier proposal: in 2021, it was reported that the Government planned an amendment to raise the limit to 74 per cent, in line with insurance; it was not enacted.
• Current proposal: in April 2026, it was reported that the Government was considering raising the limit to 100 per cent, following the increase for insurance in 2025, with a Bill expected in a later session of Parliament.
• Arguments: more capital and expertise, and consistency with insurance; against, concerns about foreign control of retirement savings and the need to keep the bar on offshore investment in Section 25.

2. Separating the NPS Trust from PFRDA

• Present position: the NPS Trust holds subscribers' assets and monitors pension funds, but operates under regulations made by PFRDA and is closely linked to it.
• The concern: the regulator should not also control the body that holds and supervises the assets it regulates, because that blurs the line between regulation and operation.
• Proposal: to separate the Trust, possibly as a charitable trust or a company, with its own board, as reported in 2020, 2021 and again in April 2026.
• Legal effect: separation would require amending the Act's references to the NPS Trust and providing for transfer of its assets, functions and obligations, much as Section 13 did for the Interim PFRDA.

3. Assured Payouts and Guarantees

• Present law: Section 20(2) permits minimum assured return schemes, but excludes any implicit or explicit assurance of benefits other than market-based guarantees.
• Development: the expert committee set up by PFRDA in January 2026 is designing assured payouts within the NPS.
• Legal question: whether assured payouts can be introduced by regulation within Section 20(2), or require amendment, depends on whether the guarantee is market-based and priced, or relies on the Government.

4. Other Areas for Reform

• Protection from attachment: an express provision protecting the NPS corpus from attachment, as exists for provident funds.
• Search and seizure: requiring judicial authorisation for searches under Section 17, as for SEBI since 2014.
• Settlement of proceedings: a mechanism for settling enforcement proceedings, comparable to SEBI's settlement regulations, to reduce litigation.
• Refund to States: a framework for dealing with the accounts of employees of States that revert to the Old Pension Scheme.
• Coordination with tax law: aligning the income tax treatment of withdrawals with PFRDA's exit rules.
• Clarity on annuities: clearer division of responsibility between PFRDA and IRDAI for annuity products.

5. Reforms Achieved without Amendment

Much of the change in the pension system since 2013 has been achieved through regulations, circulars and Government schemes, without amending the Act:

• the Atal Pension Yojana (2015);
• NPS Vatsalya (2024) and its revised guidelines (2026);
• the Unified Pension Scheme (2025);
• the Multiple Scheme Framework (2025);
• the exit and withdrawal reforms (December 2025);
• the consolidated investment guidelines (December 2025).

This shows the flexibility of the Act's framework design, but also raises a concern: major policy changes made by circular receive less parliamentary scrutiny than those made by statute or by regulations laid before Parliament under Section 53.

6. Questions Arising

Does raising the FDI limit need an amendment to the Act?

Section 24 already links the pension limit to the insurance limit. But the Government has treated an amendment as necessary, both because the FDI policy sets the pension limit separately and to give the change clear statutory authority.

Can separation of the NPS Trust be done by regulation?

Partly. The Trust already operates under PFRDA's regulations, which could change its governance. But a full separation, with its own statutory status and independence from PFRDA, would require amendment of the Act.

7. Related Topics and Provisions

• Foreign ownership and the bar on offshore investment (Sections 24 and 25)
• Pension funds and the NPS Trust (Section 23)
• Investment choice and minimum assured return schemes
• Evaluation of the Act and the way forward