Summary of this article
PFRDA is in talks with Union Finance Ministry for offering guaranteed pension under NPS
MARS aims to offer assured returns to non-government NPS subscribers
Recent NPS changes aimed at boosting flexibility and lowering costs
The Pension Fund Regulatory and Development Authority (PFRDA) is in discussions with the Union Ministry of Finance to offer a guaranteed pension scheme to NPS subscribers. This new scheme, known as the Minimum Assured Return Scheme (MARS) under the National Pension System (NPS), is aimed at providing NPS subscribers with an assured-payment option, which many retirees prefer over market-linked returns. However, to provide an assured pension, fund managers must hedge market risks, which means using derivatives. Currently, PFRDA allows limited access to derivatives for pension funds. Considering current rules, there is a need to make changes in the current risk-management framework to ensure the sustainability of an assured pension scheme.
The talks are in an initial stage. While the PFRDA pushes for MARS, it is likely to make the product expensive. Notably, NPS’s low-cost structure has been one of its biggest strengths, but a hedging mechanism might increase the cost. So, the key challenge lies in launching a guaranteed-return scheme while maintaining the low-cost structure.
PFRDA is exploring this opportunity with other regulators, and eventually, pension funds may gain access to derivatives like forward rate agreements (FRAs), per a report by Business Standard. However, pension funds need to build a robust system to use such derivatives.
NPS
NPS is a product that is open for investment by both resident and non-resident Indians (NRIs), working for an employer or self-employed or a gig worker, whether a child, an adult or a senior citizen; the product offers greater flexibility to subscribers in terms of eligibility, deposits, or even withdrawals. The product is designed to cover individuals from a wider age bracket and financial backgrounds and provide them with long-term financial security.
However, this security remains uncertain due to market-linked returns, and many people prefer investing in assured income instruments. The guaranteed return NPS scheme tries to address that.
Recent Changes In NPS
Lately, PFRDA has made several changes to the existing NPS scheme, launched new schemes, and made it more flexible.
It has made the exit and withdrawal rules for non-government subscribers more flexible. The lump sum withdrawal limit was raised from 60 per cent to 80 per cent of the corpus for those who have savings above Rs 12 lakh. The remaining portion of the corpus must be used to buy an annuity, and due to the change in lump sum withdrawal rules, the annuity portion can now be reduced from 40 per cent to 20 per cent.
The regulator has allowed pension funds to invest NPS assets in commodities, allowed commercial banks to independently sponsor pension funds managing NPS assets, and eased exit norms for NPS Vatsalya, the scheme where parents can open an NPS account for their minor children.
It has also made changes in the administration of the scheme by tightening the audit norms for Points of Presence (PoPs), the intermediaries where subscribers open and operate NPS accounts. It made an annual audit mandatory for PoPs with 10,000 or more subscribers, and less frequent audits of smaller PoPs’ operations.
Recently, it has changed the charge structure for Central Recordkeeping Agencies (CRAs) as well. It waived fees on Tier I accounts with up to Rs 1,000 balance and lowered charges for dormant accounts having no contribution for one year (four consecutive quarters).
On August 28, 2026, PFRDA revised the scheme classification framework, directing pension funds to change the name of their existing MSF schemes and consolidate them into five standardised risk categories based on equity exposure within 30 days. These categories are defined as A, B, C, D, and E, where A is the aggressive growth category having 80-100 per cent equity exposure, and E is the debt category with 0-10 per cent equity. In addition to this, to make it easier for subscribers to understand the investment pattern of the schemes, PFRDA has defined a naming structure of MSF schemes for pension funds and mandated displaying the scheme-related details in the prescribed sequence by the CRAs and other intermediaries.
It also plans to launch a healthcare and pension integrated product, NPS Swasthya Pension Scheme, in the near future, which is currently undergoing backend system integration.
The regulator is also focusing on spreading awareness around Corporate NPS and conducting training in different cities.
While these developments take effect, the guaranteed pension NPS scheme is yet to be finalised.
