India’s Pension Regulator Plans Major Reforms to Allow Customised Investment Plans

India’s pension sector may be on the brink of a significant transformation, as the country’s retirement fund regulator considers allowing individual pension fund managers to design and offer customised investment products—potentially reshaping the $175 billion industry, according to recent news reports.

PFRDA in Talks with Fund Managers

The Pension Fund Regulatory and Development Authority (PFRDA) has been actively engaging in multiple rounds of consultations with fund managers to explore this proposed shift. The primary objective is to inject greater dynamism into the pension ecosystem and accelerate its expansion.

Currently, Indian pension funds operate within a tightly controlled framework. While the industry has experienced rapid growth, retirees have limited control over how their contributions are invested. Pension fund managers—such as SBI Pension Fund Pvt. Ltd. and ICICI Prudential Pension Fund—must adhere to asset allocation models pre-set by the PFRDA, which are designed to minimise risk.

Proposed Shift Toward Tailor-Made Plans

Under the proposed reforms, pension fund houses would be allowed to design and market their own tailor-made investment schemes, targeting a broader spectrum of investors with varying risk tolerances and return expectations. This would enable pension funds to offer more diversified options, thereby enhancing their appeal and competitiveness.

What This Could Mean for the Industry

At present, the National Pension System (NPS) allows investments across four asset categories: equities, corporate debt, government securities, and alternative investment funds. Subscribers choose from a limited set of regulator-defined plans aligned with their risk profiles.

The industry has also seen a steady inflow of foreign investment, particularly following a regulatory decision about four years ago to increase the cap on foreign direct investment in pension fund companies from 49% to 74%. This liberalisation has paved the way for more joint ventures and international participation in India’s pension market.

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If implemented, the proposed changes could mark a significant departure from the status quo, empowering pension fund managers with more autonomy, while offering subscribers greater choice and control over their retirement savings.

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