India’s pension reset: Why 2025 was a turning point

While India still enjoys a demographic dividend, another reality is unfolding: longer lifespans, smaller households, and fewer adult children to rely on in old age. For many, the assumption that family will step in financially during retirement no longer holds.

This shift has forced a rethink of retirement planning. It has to be intentional and far more structured than it was for previous generations.

Against this backdrop, 2025 saw some landmark reforms in the retirement space that brought the spotlight on retirement savings and how they will shape your retirement journey in the years to come.

Structural changes were made to the National Pension System (NPS) to increase its wider acceptance among households, while the Employees Provident Fund Organization (EPFO) took some tough calls to plug complete withdrawals of the provident fund. Here are the headline events of 2025 in the space that you should take note of.

NPS get a complete facelift

NPS is a defined contribution plan. The original product required an investment for a certain number of years, and on vesting or maturity, which coincides with the traditional retirement age of 60, you annuitise at least 40% of that corpus to buy a pension for life. The rest was a tax-free corpus in your hands.

While the structure was simple, it didn’t find many takers under the voluntary all-citizen model. From an investor’s perspective, there were two key deterrents. First, for a long-term retirement product, equity exposure was capped at 75%, limiting growth potential during the accumulation phase. Second, the mandatory annuitisation rule forced investors to commit–years in advance–to buying an annuity at retirement, without any clarity on the interest rates or payouts that would prevail then.

For pension fund managers (PFMs), it was the wafer-thin costs that acted as the main barrier to pushing NPS.

Reforms in 2025 addressed all these problems and more, making NPS ready for increased traction in 2026. Spearheaded by a change in leadership at the Pension Fund Regulatory and Development Authority (PFRDA), chairman S. Raman’s task for NPS was clear: create a product that finds takers across segments of the working population. And this will be the focus for 2026.

Building a corpus

This was initiated by introducing a multi-scheme framework, which allows PFMs to design multiple investment products with pre-defined asset allocations and an option to increase the equity allocation to 100%.

“Earlier, the investments were limited to four buckets of equity, government securities, corporate bonds and alternate funds. Investors had to pick their own asset allocation keeping in mind a 75% cap on equity and a 5% cap of alternate investments," said Sriram Iyer, managing director and chief executive officer, HDFC Pension Fund Management Ltd.

This meant that all PFMs essentially offered the same investment choices designed by the regulator, with the main pull for investors being fund performance.

That has now changed. PFMs can tailor investment choices within a pre-defined asset allocation, alongside a significant expansion of the investment universe.

“Our equity universe has expanded to the top 250 stocks from the top 200 earlier. Gold and silver ETFs are now permitted within equity, up to a 5% limit. The alternate asset category has been removed, with REITs now classified under equity and InvITs under corporate bonds. Even under corporate bonds, there has been some easing in rating requirements," said Iyer.

According to Iyer, with all the PFMs now having a track record of at least three years, expanding the investment universe and allowing greater flexibility in portfolio construction is ultimately beneficial for investors.

Not everyone is convinced. While expanding the investment universe offers flexibility, allowing for multiple schemes also runs the risk of causing more confusion.

“Investment options with different nomenclatures and asset allocation will cause confusion for investors as they will find it hard to compare their performance," said Suresh Sadagopan managing director and principal officer, Ladder7 Wealth Planners. “While allowing for 100% equity is welcome, a multi-scheme framework needlessly makes choice complicated."

Quicker exit

This is not the only big-bang change for investors in the accumulation phase of the NPS. Maturity period or withdrawal timelines, too, have been relaxed to 15 years or 60 years of age, whichever is earlier.

“Now, under the original framework, which is called the common scheme, and under the new multiple scheme framework, subscribers can withdraw their money after 15 years," said Sumit Shukla, managing director and chief executive officer, Axis Pension Fund Management Ltd.

“Alternatively, subscribers can also choose to stay invested till 85 years of age, offering complete flexibility in the way an individual wants to plan his retirement."

Accumulating a retirement corpus through NPS will benefit from a wider investment universe, flexibility in early liquidity or prolonged investments, but with the confusion of multiple schemes.

Early this month, PFRDA reduced the mandatory annuitization requirement from 40% to 20%. “The PFRDA Act doesn’t specify a percentage. So the regulator is free to decide the percentage of corpus that needs to buy an annuity and the latest guidelines are in line with giving more freedom to the investors to design their own payouts," said Shukla.

But the pension regulator is not planning to stop here alone. Going beyond annuities, PFRDA is also thinking of other decumulation mechanisms that could tackle concerns of low annuity yields, lack of inflation protection, or even the lack of guarantees, causing market risks at the time of retirement.

“We need to be very cautious about giving guaranteed returns because long term products to manage such guarantees don’t exist in the market. But for end consumers these discussions are going to be positive as we get flexibility in designing products for target segments," added Iyer.

Revision in the pension fund management fee can also bring fresh enthusiasm. According to Shukla, a revision of the pension fund management charge to 30 basis points for the multiple scheme framework will also leave more in the hands of PFMs to push distribution.

In the old schemes or what’s now called the common scheme, the fund management charge that was pegged to the AUM ranged between 0.03% to 0.09%. “Even these charges should get revised upwards for parity between schemes," added Shukla.

For subscribers, the changes, especially those related to investments and withdrawals, are well-intentioned, but these changes come with tax implications.

Withdrawals have been relaxed to 80% but only 60% of the corpus is tax-free. "If the remaining 20% continues to be taxed, NPS will make sense only for people in the lower income tax bracket. It’s important for the entire corpus to be tax-free for NPS to make sense for the wider population," said Surya Bhatia, managing partner of Asset Managers.

But NPS is fast becoming an alternative option in the corporate sector. “NPS has expanded its investment universe, reduced the lock-in and has also reduced the mandatory annuitization from 40% to 20% which makes the product very attractive. Given it has tax benefits for the employees even in the new regime, it’s definitely going to pick up in corporate set-up," said Kuldeep Parashar, founder, PensionBox.

Parashar is referring to section 80CCD (2) of the Income Tax rules that allow a deduction up to 14% of basic salary plus DA contributed by an employer towards an employee’s NPS in the hands of an employee.

Tougher exits in EPF

While the changes in the NPS make the scheme more flexible, changes to your employees' provident fund (EPF) are geared towards plugging exits.

For a complete withdrawal of your provident fund, the unemployment window has gone up from 2 months to 12 months. In other words, EPFO wants you to touch your long term corpus only in case of a prolonged period of unemployment.

Further, in the case of Employees Pension Fund (EPS), the window has gone up from two months to 36 months. The rules though have been simplified for partial withdrawals. Earlier, there were multiple partial withdrawal rules that dictated when, how much and for what purpose you could withdraw from your provident fund.

Now, all of them have been consolidated into three overarching needs: social security, housing, and special circumstances. Social security needs include those related to illness, education, and marriage.

There is, however, one additional rule: you will need to maintain a minimum balance of at least 25% of the corpus outstanding at the time of withdrawal. This, according to the EPFO, is to ensure that you have some corpus left that can compound for you over the long term.

As per Sadagopan, EPF is a solid long-term retirement vehicle which shouldn’t be made leaky via multiple partial withdrawals. “EPF currently gives 8.25% and has been consistently giving 8% plus risk free return. It’s a great forced saving vehicle for the long term," he said.

The problem with EPF however is not so much with the product but with processes and as per Madhu Damodaran, member of central board of Trustees, 2025 has brought that also in the spotlight.

“EPFO 2.0 will consolidate and streamline employee databases which will enable effective integrations of all EPF accounts under one UAN. This will also mean that subsequent requests of transfer, withdrawals etc will become smooth," said Damodaran. The new exit rules and their implementation are expected soon, he added.

Taken together, 2025 marks a pivotal year in India’s retirement architecture. And it matters for you because retirement can no longer be deferred, delegated, or left to family. It has to be planned—early and deliberately.