Corporate NPS: New Rules on Pension Fund and Investment Choices (PFRDA Circular 2025)
The Pension Fund Regulatory and Development Authority (PFRDA) has issued a new circular on 7 November 2025 introducing important updates for employers and employees under the Corporate NPS model. This circular partially modifies the earlier circular dated 12 September 2025 and aims to remove confusion regarding the selection of pension funds and investment schemes, especially in cases where employers are co-contributing or solely contributing to an employee’s NPS account.
Below is a simple and clear explanation of the revised provisions.
1. Why This Revision Was Needed
Many employers in the corporate sector had expressed concerns about choosing:
- Pension Funds (PFs), and
- Investment Choices / Asset Allocation
for employees covered under Corporate NPS, particularly where the employer contributes equally, contributes more than the employee, or makes the entire contribution.
To address these concerns, PFRDA has introduced a structured, transparent, and mutually agreed system.
2. Key Provisions of the New Corporate NPS Guidelines
A. Mutual Agreement Between Employer and Employees
Under the revised framework:
- When both employer and employee contribute (or employer contributes more or fully),
- The choice of Pension Fund and choice of investment scheme must be decided through a formal mutual agreement between management and employees.
This agreement can be structured in any manner that both parties find acceptable.
B. Annual Review of Pension Fund Selection
- The Pension Fund chosen initially must be reviewed every year by the employer.
- Any change in the Pension Fund should follow conditions laid out in the mutual agreement.
- The evaluation should focus on:
- The long-term nature of pension savings, and
- Historical performance of asset classes over 20–30 years, rather than short-term market movements.
PFRDA emphasizes that decisions affecting long-term wealth creation should not be influenced by short-term fluctuations.
C. Importance of Consultation and Financial Education
The circular stresses that:
- Employers must engage in consultation and financial awareness sessions with employees.
- Financial education should be a core part of the mutual agreement to help employees understand long-term investment implications.
D. Additional Voluntary Investments by Employees
Apart from the main co-contribution arrangement:
- Employees may choose to invest voluntarily in:
- Common Schemes, or
- Schemes under the Multiple Scheme Framework (MSF)
within the NPS.
E. Flexibility in Choice of Schemes
The mutual agreement must ensure:
- Sufficient options within the selected Pension Fund to match the varied risk appetites of different employees.
F. Grievance Redressal Process
The circular outlines a clear grievance mechanism:
- The first-level grievance must be lodged with the company’s HR department.
- An employee can escalate the issue only after showing proof that HR did not take timely action.
G. Option for Employers to Give Full Investment Freedom
At any time, the employer may decide that:
- The entire investment choice (scheme or Pension Fund) can be left to the employee without needing a mutual agreement.
H. Role of Point of Presence (PoPs)
Corporates must:
- Engage with PoPs to provide NPS services as per Regulation 15 of the PFRDA (PoP) Regulations, 2018.
- PoPs must communicate any mutual agreement–based choices to the CRA in writing, following established protocols.
For Public Sector entities, communication should happen only after internal circulars are issued by each organization.
I. Role of Central Recordkeeping Agencies (CRAs)
- CRAs cannot make any changes in their system unless they receive explicit instructions from the employer.
3. Legal Basis
The circular has been issued under Section 14 of the PFRDA Act, 2013.
Conclusion
The revised provisions aim to strengthen transparency, employee participation, and long-term financial planning under the Corporate NPS model. By encouraging mutual agreement, annual reviews, and better financial education, PFRDA is promoting a more employee-friendly and stable retirement savings framework.