PFRDA Revamps Corporate Model NPS Rules: Employers, employees to jointly decide pension fund choices

PFRDA Revamps Corporate Model NPS Rules: Employers, employees to jointly decide pension fund choices

The Pension Fund Regulatory and Development Authority (PFRDA) has issued a new circular in connection with the Corporate Model NPS. The new circular revises important provisions for corporate sector subscribers to exercise their choices of Pension Funds and Investment Choices under the National Pension System (NPS).

The announced changes are intended to give employers and employees greater freedom and clarity when it comes to choosing investment options and pension funds.

It is to be noted that the recent circular updates an earlier directive issued on September 12, 2025, responding to concerns from several corporate employers about making investment decisions in joint contribution structures, where both employers and employees contribute to NPS, or where only the employer contributes on behalf of employees.

What's new for corporates and employees under NPS

The PFRDA has established a clear structure for decision-making and managing grievances in corporate NPS settings.

The key provisions are:

1. Mutual agreement regarding investing choices

When both the employer and the employee pay to the NPS, or when the employer contributes more, the pension fund and investment scheme must be decided by a formal, mutual agreement between the company and its employees.

This agreement may be structured in any way that both sides deem appropriate.

It gives employees a vote over how their long-term retirement assets are invested.

2. Annual examination of pension fund performance

Every year, the employer must examine the performance of the selected pension fund.

Any decision to change the pension fund should follow the conditions agreed upon in the mutual agreement.

PFRDA has stressed that these decisions should consider the long-term nature of retirement savings, evaluating performance trends over 20 to 30 years instead of reacting to short-term market changes.

3. Voluntary contributions accepted

Even if a company has a shared contribution arrangement, employees can make voluntary contributions to other NPS plans, including those covered by the Multiple Scheme Framework (MSF).

4. Selection of risk level within funds

The mutual agreement must provide employees with sufficient options inside a pension fund so that individuals with different risk tolerances can choose appropriate investment options.

5. Grievance Redressal Procedure

In circular clarifies that the employee must first contact their organization's HR department if they have a grievance about fund selection or investing decisions

Grievance can only be escalated only if the HR fails to reply. It further suggests that the escalation must contain evidence of HR's inaction.

6. Employer can delegate full control to employees

The new directive further say that without being limited by any mutual agreement, an employer may choose to give employees full authority to select their own pension fund or scheme at any given time.

7. Role of PoPs and CRAs clarified

Corporates are obligated to use Points of Presence (PoPs) for NPS-related services under the PFRDA (PoP) Regulations of 2018.

PoPs must communicate investment decisions made under mutual agreements to Central Recordkeeping Agencies (CRAs) using predefined protocols.

CRAs cannot perform system-level changes unless they are given official instructions from the employer.