Law and statutory body
PFRDA and National Pension System (NPS)
GS3 Economy · Pensions and financial regulationPrelims and Mains
- Why in news
- On 25 January 2026, PFRDA set up SAARG, a committee of investment experts, to review and modernise the investment guidelines of the National Pension System (NPS). It has 9 months to report.
- What it is
- PFRDA is the statutory regulator of pension funds in India, set up under the PFRDA Act, 2013. It regulates the NPS, a defined-contribution retirement scheme for government and non-government subscribers. Pension funds invest NPS money under investment guidelines set by PFRDA, covering asset classes, limits and benchmarks.
- Body and purpose
- SAARG is the Committee for Strategic Asset Allocation and Risk Governance. It is meant to review, recommend and modernise the NPS investment framework.
- Chair
- Narayan Ramachandran, former Country Head and CEO of Morgan Stanley India, chairs the committee. Members come from capital markets, asset management and securities law.
- Timeline
- The committee has nine months to examine and submit its report with recommendations to PFRDA.
- Scope: portfolio stability
- It will look at holding a portion of G-Secs under Held-to-Maturity, the feasibility of Securities Lending & Borrowing, and Triparty Repo arrangements.
- Scope: alternatives and sustainability
- It will recommend valuation principles for Alternate Investment Funds and assess embedding climate transition risks and net-zero pathways in asset selection.
- Legal basis of PFRDA
- PFRDA is a statutory body under the PFRDA Act, 2013, and regulates the NPS.
- Bank-sponsored pension funds
- The board approved in principle a framework for scheduled commercial banks to independently set up pension funds to manage NPS.
- Eligibility criteria
- Eligibility will rest on net worth, market capitalisation and prudential soundness in line with RBI norms. Detailed criteria will be notified separately and will cover both new and existing pension funds.
- NPS Trust chair
- Dinesh Kumar Khara, former SBI Chairman, is among the three new trustees and has been designated Chairperson of the NPS Trust Board.
- Annual Regulatory Fee
- The Annual Regulatory Fee of 0.015 per cent stays unchanged. Of this, 0.0025 per cent of AUM goes to the Association of NPS Intermediaries for outreach and financial literacy.
- Statutory basis
- PFRDA became a statutory body through the PFRDA Act, 2013.
Don’t confuse with PFRDA vs SEBI: PFRDA regulates pension funds and the NPS. SEBI regulates securities markets and mutual funds, and AIFs fall under SEBI rules.
Don’t confuse with Held-to-Maturity vs mark-to-market: HTM securities are carried at cost and not revalued with market prices. This gives stability in reported value, unlike mark-to-market holdings.
Don’t confuse with PFRDA vs NPS Trust: PFRDA is the regulator. The NPS Trust is a separate trust, set up under PFRDA's oversight, that holds NPS assets for subscribers.
Don’t confuse with Investment Management Fee vs Annual Regulatory Fee: The IMF is charged by pension funds for managing money. The ARF is paid by pension funds to PFRDA.
Laws, judgments and statutory bodies: 30 Prelims questions since 2013 (what the law says, who chairs, legal basis). In Mains, 44 news-triggered questions, most in GS2, asking for provisions and challenges.
Why it matters
- A review of NPS investment rules can improve diversification and long-term returns for retirement savers.
- Benchmarking against global pension systems can raise risk management and accountability of pension funds.
- Bank-sponsored pension funds can increase competition and may lower costs for subscribers.
- Lower fee slabs at higher AUM may improve long-term retirement corpus.
Problems
- Alternative assets and AIFs are illiquid and hard to value, which adds risk for retirement money.
- Wider choice and more complexity may be hard for ordinary subscribers to judge.
- Bank sponsors may face conflicts of interest between their banking business and fund management.
- Lower fees could squeeze smaller pension funds and affect service quality.
Way forward
- Adopt the committee's recommendations with prudential exposure limits and clear valuation standards.
- Pair new asset classes with subscriber awareness and transparent performance benchmarks.
- Notify clear prudential and governance criteria and monitor them closely.
- Extend coverage to gig and informal workers while keeping charges low.
Put in your answer
SAARG review scope: Cite SAARG's mandate on asset classes, ALM, valuation of alternatives and sustainability as an example of reform in pension investment governance.
Regulatory reform example: Opening pension fund sponsorship to well-capitalised banks, using RBI-aligned prudential norms.
- 2013Mains GS2 · Q8Justify merging SEBI and IRDA given overlapping financial products and services.
- 2015Mains GS2 · Q16Discuss whether regulatory institutions must remain independent and autonomous, using recent experience.
- 2017Prelims Q29Who is eligible to join the National Pension System (NPS)?
UPSC’s own questions that come close to this issue, from our Prelims and Mains banks.
No practice question for this one; the card may still help an answer. Why: PFRDA is a statutory body and NPS a lasting topic. The committee is new and has few testable facts. Statutory bodies drew only 7 Prelims questions.
Worth revising until Prelims 2027: most news questions come within two years of the event.