National Pension System: Reimagining Retirement Security Since 2004

Policy Update
Arjya Shree Pande

Background

The National Pension System (NPS) was notified by the Ministry of Finance on 22 December 2003 and became effective from 1 January 2004. Originally introduced as the New Pension Scheme, it was designed as a new defined contribution system to replace the traditional defined benefit Old Pension Scheme (OPS) for new government recruits and represents a major shift in India’s approach to old-age income security. An interim Pension Fund Regulatory and Development Authority (PFRDA) was also set up in 2003 to oversee it.

On 13 August 2009, the Department of Financial Services issued an Office Memorandum that formally replaced the nomenclature “New Pension Scheme” with “National Pension System” (NPS). The change reflected the scheme’s expanded scope as it was no longer limited to government employees. From 1 May 2009, NPS was opened voluntarily to all Indian citizens, including the unorganized sector and self-employed. The new name emphasized its national character as a portable, individual retirement account system available across sectors, rather than merely a “new” replacement for the old government pension.

It was launched to address the growing fiscal burden of the traditional defined-benefit pension system for government employees and the near absence of formal pension coverage for the vast unorganized sector and self-employed population (Department of Financial Services, n.d.; Pension Fund Regulatory and Development Authority [PFRDA], 2025). 

The reform process began with Project Old Age Social and Income Security (OASIS), commissioned by the Ministry of Social Justice and Empowerment in 1998–99. An expert committee chaired by S.A. Dave submitted its report in January 2000, examining policy options for old-age income security and recommending a defined-contribution framework.

These recommendations, along with growing concerns over the fiscal burden of the pre-2004 Old Pension Scheme (OPS) under which pensions were fully funded by the government and linked to the last drawn salary, so Central Government pension expenditure rose sharply from ₹2,138 crore in 1990-91 to ₹14,496 crore in 2002-03 (and was budgeted at ₹15,466 crore for 2003-04). As a proportion of GDP, it increased from 0.38 per cent in 1990-91 to 0.59 per cent in 2002-03, and by the early 2000s, it reached nearly 50 per cent of the expenditure on pay and allowances.

The compound annual growth rate of Central Government pension outgo was around 21 per cent during the 1990s. At the State level, pension payments also rose rapidly (average annual increase of about 27 per cent in the late 1990s), with pension expenditure as a share of revenue receipts climbing from 5.4 per cent in 1990-91 to more than 10 per cent by 2000-01 (Economic Survey 2003-04; Economic Survey 2004-05), so that prompted the Government of India to shift to a new system.

The Ministry of Finance notified the defined contribution pension scheme through Notification F. No. 5/7/2003-ECB&PR dated 22 December 2003. An interim Pension Fund Regulatory and Development Authority (PFRDA) was established on 10 October 2003 to oversee its implementation, and the scheme became operational for new Central Government recruits (except the Armed Forces) from 1 January 2004 (PFRDA, 2025; Department of Financial Services, 2025).

The primary objectives are to promote old age income security through systematic savings during working life, ensure a stable post-retirement income, develop a regulated pension market, protect subscriber interests, and extend coverage beyond government employees to all citizens (PFRDA Act, 2013; PFRDA, 2025).

The PFRDA Act, 2013 granted statutory status to the Pension Fund Regulatory and Development Authority with effect from 1 February 2014, marking a major institutional milestone. Subsequent developments include the launch of Atal Pension Yojana in 2015, the introduction of digital platforms such as e-NPS, the increase in government contribution to 14 per cent for Central Government employees, tax reforms that made 60 per cent of the corpus tax-free at withdrawal, and the progressive expansion of investment options.

Most recently, the Unified Pension Scheme (UPS) was introduced as an option under NPS with effect from 1 April 2025. UPS offers Central Government employees an assured payout of 50 per cent of the average basic pay of the last 12 months (after 25 years of service), while continuing to operate within the existing NPS architecture and contribution framework (PFRDA, 2025; Department of Financial Services, 2025).

Initially mandatory for Central Government recruits joining on or after 1 January 2004, NPS is now open to any Indian citizen (resident, non-resident or overseas) aged 18–85 years, corporate employees, and, through specialized variants, workers in the unorganized sector (PFRDA, 2025).

Functioning

The National Pension System (NPS) operates as a defined-contribution, market-linked retirement savings scheme. Subscribers accumulate a corpus in an individual Permanent Retirement Account Number (PRAN) through regular contributions during their working life. At exit (normally at age 60 or superannuation), a minimum of 40 per cent of the accumulated corpus must be used to purchase an annuity for lifelong pension, while the balance may be withdrawn as a lump sum.

For non-government sector subscribers (All Citizen Model and Corporate), following the 2025 amendments to the PFRDA Exit Regulations, the mandatory annuity portion has been reduced to a minimum of 20 per cent, allowing up to 80 per cent to be withdrawn as a lump sum (subject to corpus-size thresholds).

In both cases, if the total corpus is below the prescribed limit (currently ₹8 lakh), full withdrawal as lump sum is permitted without purchasing an annuity (PFRDA, 2025).

The architecture is unbundled, involving the NPS Trust, Central Recordkeeping Agencies, Pension Funds, Points of Presence, Trustee Bank and Custodian, ensuring low costs, transparency and portability (PFRDA, 2025). Investment choices include Active Choice (subscriber-determined allocation across equity, corporate bonds, government securities and alternatives, subject to caps) or Auto Choice (lifecycle funds that reduce equity exposure with age). The system offers Tier-I (pension account with restricted withdrawals) and Tier-II (voluntary savings account) facilities (Pension Fund Regulatory and Development Authority [PFRDA], 2025).

PFRDA, established under the PFRDA Act, 2013, is the statutory regulator responsible for promoting old-age income security, registering intermediaries, issuing investment guidelines, and protecting subscriber interests.

The architecture is deliberately unbundled to minimize costs and systemic risk: the NPS Trust holds assets on behalf of subscribers; Central Recordkeeping Agencies (CRA) (currently Protean eGov, KFin Technologies and CAMS) maintain records and provide subscriber services; registered Pension Funds manage investments; Points of Presence (PoPs) handle distribution and enrolment in the non-government sector; a Trustee Bank (Axis Bank) manages fund flows; a Custodian safeguards securities; and Annuity Service Providers deliver post-retirement payouts (PFRDA, 2025).

For Central and State Government employees, contributions are deducted through nodal offices (DDOs/DTOs) and remitted to the CRA system. Non-government subscribers enrol via PoPs, e-NPS or digital platforms. Fund allocation, NAV declaration and account statements are fully digitized. From 1 April 2025, Central Government employees under NPS may opt for the Unified Pension Scheme (UPS), which operates within the same architecture but provides an assured payout (PFRDA, 2025).

NPS is fully funded by subscriber and employer contributions. For Central Government employees under standard NPS, the employee contributes 10 per cent of basic pay + DA, and the government contributes 14 per cent. Under UPS, the employee contributes 10 per cent; the government matches 10 per cent to the individual corpus and provides an additional estimated 8.5 per cent to a pooled corpus supporting the assured benefit. This scheme is inflation-indexed through Dearness Relief (DR) on the assured monthly payout and family payout.

This Dearness Relief is calculated in the same manner as the Dearness Allowance given to serving government employees and is linked to the All-India Consumer Price Index. As a result, the pension amount rises periodically with inflation, helping retirees maintain the real value of their income over time. Voluntary and corporate subscribers fund their own accounts, with optional employer co-contributions (PFRDA, 2025; Department of Financial Services, 2025).

Growth has mainly come from digital onboarding, tax incentives, and expansion to platform workers and informal sectors. Recent reforms such as the Multiple Scheme Framework (effective October 2025) further enhance investment flexibility (PFRDA press releases and NPS Trust data, 2025–2026), as NPS has a simple structure and low-cost design, and regulatory oversight has enabled rapid scaling and transparency.

Performance

Over the last 6 years, the National Pension System (NPS) has demonstrated robust expansion in both subscriber base and Assets Under Management (AUM), as evidenced by official data from PFRDA statistical bulletins, NPS Trust dashboards, the Economic Survey (via PIB releases), and Ministry updates.

According to the Economic Survey 2025-26 (highlighted in PIB releases), as of 31 December 2025, NPS had 211.7 lakh subscribers with managed assets of approximately ₹16.1 lakh crore, and by mid-2026 it stood at around 2.24 crore (National Pension System Trust, n.d.; Press Information Bureau, 2026).

Over the decade from FY15 to FY25, subscribers grew at a CAGR of 9.5 per cent, while AUM expanded at a strong CAGR of 37.3 per cent (Economic Survey 2025-26, as cited in Press Information Bureau, 2026). Combined with Atal Pension Yojana (APY), the broader pension ecosystem under PFRDA crossed 9 crore subscribers and significant AUM milestones by mid-2026, with NPS alone approaching or exceeding ₹16–18 lakh crore in recent periods.

Five-year growth in NPS enrollment (subscriber numbers)

Chart 1

Here, Chart 1 represents consistent and absolute growth of roughly 1.3 – 2.0 million additional subscribers each year in the earlier part of the period, with acceleration in more recent years driven by digital onboarding, corporate adoption, All-Citizen enrolments, and newer initiatives such as NPS Vatsalya. The data confirm a clear upward trajectory in enrollment over the last five years, while the government sector continues to form the largest share and non-government segments expand at a faster relative pace (National Pension System Trust, 2026; Press Information Bureau, 2026).

Figure 1

Source: National Pension System Trust. (n.d.). AUM and subscriber base [Chart]. 

Figure 1: Growth in NPS Subscribers (2013–2026)

Here, the chart shows that the NPS subscriber base has grown from 65.06 lakh in 2013–14 to over 2.2 crore by 2026. This reflects a strong and consistent increase in participation over the years.

Figure 2

Source: National Pension System Trust. (n.d.). AUM and subscriber base [Chart].

Figure 2: Growth in Assets Under Management (AUM) under NPS (2013–2026)

The chart illustrates that Assets Under Management (AUM) under NPS rose from ₹48,103 crore in 2013–14 to more than ₹16 lakh crore by 2026. The sharp rise reflects higher contributions and strong market-linked returns over time.

PFRDA’s programme MIS shows consistent year-on-year growth (YoY) in subscribers. For instance, total NPS + APY subscribers rose from around 7.0–7.3 crore in late 2023–early 2024 to over 8.0–9.6 crore by early–mid 2026, with YoY growth typically in the 14–15 per cent range (Pension Fund Regulatory and Development Authority [PFRDA], 2025, 2026). Contributions grew at over 22 per cent YoY in several periods, and AUM growth often exceeded 20–25 per cent (PFRDA, 2025; Press Information Bureau, 2026).

Sectoral analysis reveals that the government sector (Central and State) continues to dominate AUM (around 75 per cent), while the corporate and All-Citizen segments have recorded faster subscriber growth (often 17–23 per cent YoY) (PFRDA, 2025). NPS Vatsalya (for minors, launched in 2024) has also shown rapid early uptake (PFRDA, 2025).

Trend analysis indicates sustained momentum driven by digital platforms (e-NPS), tax incentives, and expansion efforts targeting informal and platform workers (e.g., the NPS e-Shramik model launched in 2025) (Press Information Bureau, 2026; PFRDA, 2025). State-wise data from PFRDA dashboards highlight varying adoption levels, with larger states contributing the bulk of government-sector enrolments, while non-government growth is more evenly distributed through Points of Presence and online channels (PFRDA, 2025).

Comparative analysis with APY shows the latter’s higher CAGR in subscribers (over 40 per cent since inception), reflecting its focus on low-income unorganized workers, while NPS delivers higher average corpus accumulation due to its market-linked structure (PFRDA, 2025).

Earlier CAG performance audits (notably Report No. 13 of 2020) and subsequent state-level CAG findings have flagged implementation challenges such as delays in PRAN issuance, contribution remittances, and fund transfers to the Trustee Bank in certain jurisdictions, which can affect timely investment and returns (Comptroller and Auditor General of India, 2020).

Recent state audits in select states continue to note residual shortfalls or parking of funds, though overall systemic improvements and digitalization have mitigated many earlier gaps. Union Budget measures and PFRDA reforms, including the Unified Pension Scheme (operational from April 2025) as an option under NPS and enhanced investment flexibility, have further strengthened the framework (PFRDA, 2025; Press Information Bureau, 2026).

Overall, official evidence from PFRDA MIS, Economic Survey, PIB, and related government sources confirms strong quantitative performance in scale and asset growth.

Impact

The National Pension System (NPS) was introduced with the core objectives of promoting old-age income security through systematic, individual savings; establishing a regulated, transparent and low-cost pension market; extending coverage beyond government employees; and enhancing long-term fiscal sustainability by shifting from an unfunded defined-benefit model to a defined-contribution framework (Pension Fund Regulatory and Development Authority [PFRDA], 2025; Department of Financial Services, 2025/2026).

Official evidence indicates substantial progress toward these goals.  Combined with Atal Pension Yojana, the PFRDA-regulated ecosystem has reached well over 9 crore subscribers, demonstrating success in building a scalable architecture and encouraging long-term retirement savings (Press Information Bureau [PIB], 2026; PFRDA statistical bulletins). The extension of NPS to all citizens (2009), corporates, minors (NPS Vatsalya, 2024) and platform/gig workers (e-Shramik model, 2025), along with digital platforms such as e-NPS, has broadened access and supported financial inclusion objectives highlighted in the Economic Survey.

The unbundled, regulated structure under the PFRDA Act, 2013, has delivered competitive market-linked returns (historically around 9 per cent or higher CAGR in many schemes) at low costs, while the mandatory shift for Central Government employees (and most State Governments) has reduced the open-ended fiscal liability associated with the Old Pension Scheme. The introduction of the Unified Pension Scheme in 2025 as an option under NPS further addresses adequacy and predictability concerns for government employees while remaining within a funded framework (PFRDA, 2025; PIB, 2026).

Nevertheless, government sources themselves acknowledge that coverage remains limited relative to India’s large informal workforce. (Pension Fund Regulatory and Development Authority [PFRDA], 2025; PFRDA, 2026). 

According to the Economic Survey 2024-25 and PFRDA documents, around 58.4 per cent of the workforce is self-employed and 19.8 per cent is engaged in casual labor segments that generally lack statutory access to workplace related pensions (Pension Fund Regulatory and Development Authority [PFRDA], 2025). The e-Shram portal has registered over 30.5–31 crore unorganized workers, indicating the vast size of the informal workforce (Press Information Bureau, 2026; PFRDA, 2025).

In comparison, the combined subscriber base under NPS and Atal Pension Yojana (APY) remains significantly smaller. APY, the main scheme targeted at the informal sector, has approximately 6.6 crore subscribers, while the entire NPS subscriber base (including government employees) stood at around 2.12 crore as of December 2025 (PFRDA, 2025; Press Information Bureau, 2026).

This leaves a substantial coverage gap, with only a small fraction of the informal and unorganised workforce currently enrolled in formal contributory pension schemes. Though,

PFRDA continues to prioritise outreach to farmers, MSMEs, self help groups and gig workers, indicating that universal old age income security is still a work in progress. Residual operational challenges, such as contribution delays flagged in earlier audits, have also required ongoing corrective measures.

Overall, official reports and data from PFRDA, the Economic Survey and PIB confirm that NPS has largely achieved its foundational objectives of institutionalising a sustainable, portable and regulated contributory pension system and mobilising substantial long-term savings. Full realisation of comprehensive old-age security across the population, however, depends on continued expansion of voluntary participation and deeper penetration into the informal economy.

Emerging Issues

Coverage and Inclusion Gaps

Despite significant expansion, NPS coverage remains limited relative to India’s workforce. Official assessments note that a large share of the informal and unorganized sector, comprising the majority of workers, still lacks adequate statutory old-age income protection. While Atal Pension Yojana and recent initiatives such as the e-Shramik model target this segment, the absolute numbers lag far behind the potential universe of unprotected workers. PFRDA and Economic Survey references highlight the need for deeper penetration among self-employed, casual labor, gig workers, farmers, and women (Press Information Bureau, 2026; Pension Fund Regulatory and Development Authority [PFRDA], 2025).

Implementation and Operational Challenges

Persistent issues in timely deduction, remittance and transfer of contributions to the Trustee Bank have been flagged in audit observations at both central and state levels. Delays can erode returns and create deferred liabilities. Variations in state-level adoption, nodal office capacity and digital infrastructure further affect uniform implementation, particularly in remote or geographically challenging regions.

Adequacy, Design and Market Risks

As a pure defined contribution product, NPS exposes subscribers to market volatility, raising concerns about pension adequacy at retirement. The mandatory annuitization requirement has also drawn feedback regarding the attractiveness of rates. The introduction of the Unified Pension Scheme as an option under NPS addresses part of the demand for greater predictability among government employees, yet broader design questions on flexibility, inflation protection, and systematic withdrawal options remain under active regulatory consideration.

Awareness and Financial Literacy

Low awareness of tax benefits, investment choices and long-term compounding continues to constrain voluntary uptake, especially among lower-income and rural households. Official documents emphasize the need for sustained outreach and simplified communication to build trust and participation (Press Information Bureau, 2026).

Institutional Coordination and Monitoring

Effective coordination among Central and State Governments, nodal offices, Points of Presence and intermediaries is critical. Strengthening real-time monitoring, grievance redressal and interoperability across schemes will be essential to sustain momentum and protect subscriber interests as the system scales.

Way Forward

Expanding Coverage and Inclusion

The path ahead prioritizes bringing India’s vast informal, gig, agricultural, and self-employed workforce into the pension fold. The official strategy emphasizes partnerships with Farmer-Producer Organizations, MSMEs, self-help groups and platform companies, alongside models such as NPS e-Shramik and simplified variants tailored for irregular incomes. A calibrated expansion of both contributory and non-contributory schemes, with stronger state-level engagement, will support the national vision of “Pension for All” by 2047 and advance inclusive development (Press Information Bureau, 2026; Pension Fund Regulatory and Development Authority [PFRDA], 2025).

Enhancing Product Design and Flexibility

Continued refinement of investment choices under the Multiple Scheme Framework, exploration of alternatives to rigid mandatory annuitization, including systematic withdrawal and inflation-protected options, and lessons from the Unified Pension Scheme can improve adequacy and subscriber confidence. Developing flexible, affordable products that balance market-linked growth with greater predictability will strengthen long-term retirement security while preserving fiscal sustainability.

Strengthening Implementation and Digital Infrastructure

Leveraging technology such as mobile platforms, seamless digital onboarding, real-time contribution tracking and AI-enabled services will reduce operational delays and improve last mile delivery. Expanding interoperability across NPS, APY and other schemes will enhance portability for a mobile workforce and support efficient monitoring (Press Information Bureau, 2026).

Building Awareness and Financial Literacy

Sustained, targeted campaigns and integration of pension literacy into broader financial education efforts are essential to raise appreciation of compounding, tax benefits and early savings. Multi-pronged outreach, including behavioral nudges and contextual messaging, will drive voluntary participation, especially among middle-income and rural households.

In this direction, the Retirement Planner Scheme launched by PFRDA plays a key role by appointing trained Retirement Planners who conduct workshops across the country. These workshops educate people on the importance of early retirement planning, estimating future needs, tax benefits, and the role of NPS and APY. By creating widespread awareness through structured training and outreach programmes, the scheme helps build a stronger culture of retirement preparedness and financial literacy among citizens.

Institutional Coordination and Capacity Building

Closer alignment among PFRDA, EPFO, state governments and other stakeholders will reduce fragmentation and strengthen governance. Investing in actuarial capabilities, risk modelling and long-duration investment channels will enhance system resilience. These measures align NPS more closely with India’s development priorities of inclusive growth, demographic preparedness and a secure Amrit Kaal (Press Information Bureau, 2026; PFRDA, 2025).

References 

Department of Financial Services. (n.d.). National Pension System. Ministry of Finance, Government of India. https://financialservices.gov.in

National Pension System Trust. (n.d.). AUM and subscriber base. https://npstrust.org.in/aum-and-subcriber-base

Pension Fund Regulatory and Development Authority. (n.d.). About the National Pension System (NPS). https://www.pfrda.org.in/web/pfrda/schemes/national-pension-system/about-nps

Pension Fund Regulatory and Development Authority. (n.d.). History of PFRDA – Evolution of pension regulation in India. https://pfrda.org.in/about-us/history

Pension Fund Regulatory and Development Authority. (n.d.). Unified Pension Scheme. https://www.pfrda.org.in/web/pfrda/schemes/national-pension-system/unified-pension-scheme

Pension Fund Regulatory and Development Authority. (n.d.). Old Age Social and Income Security (OASIS) Project Report. https://pfrda.org.in/web/pfrda/w/old-age-social-and-income-security-oasis-project-report

Pension Fund Regulatory and Development Authority. (n.d.). Handbook of National Pension System Statistics. https://www.pfrda.org.in

Pension Fund Regulatory and Development Authority. (n.d.). Pension Bulletins (various monthly/annual issues, 2023–2026). https://www.pfrda.org.in

Press Information Bureau. (2026, January 29). Significant strides made in pension and insurance cover providing social security over the years (PRID 2219928). Ministry of Finance, Government of India. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219928

Press Information Bureau. (n.d.). Various press releases on NPS, APY, and Economic Survey highlights. 

https://www.pib.gov.in

Comptroller and Auditor General of India. (2020). Report No. 13 of 2020 – Performance audit on National Pension System.

https://cag.gov.in/cen/delhi-v/en/audit-report/details/112173

Pension Fund Regulatory and Development Authority. (n.d.). Pension Bulletin – March 2026 (Vol. XIV, Issue XIII). https://www.pfrda.org.in/documents/33652/145901/Pension+Bulletin-+March+2026-+Vol+XIV+Issue+XIII.pdf

About the contributor

Arjya Shree Pande is a Research and Editorial Intern at IMPRI. She is currently pursuing a Masters in Sociology and Advanced Post Graduate Diplomas in Communication for Social Behaviour Change, technical support (UNICEF) and Global Politics. She is seeking analytical, policy, or programme oriented roles in international, governmental, or development settings where she wants her experience in research, behavioural insights, and governance expertise can be applied to evidence based decision making, public service delivery, and technology enabled social impact.

Acknowledgments 

The author sincerely expresses gratitude to the reviewers (Gargi Bisht and Khushi), IMPRI India, and the editorial team for their valuable comments, constructive suggestions, and continuous guidance throughout the preparation of this article.
Publisher: Neha Kumari

Disclaimer

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