The year 2025 marked a pivotal reset for retirement planning in India. Driven by shifting social structures—including smaller families, longer lifespans, and children living farther from parents—the assumption of familial financial support in old age is eroding. This societal shift forced a critical reevaluation of retirement savings, making intentional and structured planning more crucial than ever. In response, landmark reforms were introduced in the retirement space, fundamentally altering the National Pension System (NPS) and the Employees' Provident Fund (EPF).
NPS Gets a Major Makeover for Wider Appeal
Spearheaded by new leadership at the Pension Fund Regulatory and Development Authority (PFRDA) under chairman S. Raman, the NPS underwent structural changes aimed at boosting its acceptance among Indian households. The old model, with its cap on equity exposure at 75% and a mandatory requirement to annuitize 40% of the corpus at age 60, faced criticism for limiting growth and locking investors into future annuity rates without clarity.
The 2025 reforms tackled these pain points head-on. A new multi-scheme framework was introduced, allowing Pension Fund Managers (PFMs) to design varied investment products. Crucially, the equity cap was raised, permitting allocations up to 100%. The investment universe was also expanded to include gold and silver ETFs (up to 5% in equity) and reclassified assets like REITs and InvITs.
Sriram Iyer, MD & CEO of HDFC Pension Fund Management, noted that with PFMs now having a track record, expanding choices benefits investors. However, some experts like Suresh Sadagopan of Ladder7 Wealth Planners warn that multiple schemes with different names could confuse investors when comparing performance.
Enhanced Flexibility in Accumulation and Withdrawal
The reforms brought significant flexibility to both the accumulation and withdrawal phases. The minimum investment period for withdrawal was reduced to 15 years or age 60, whichever is earlier. Alternatively, subscribers can choose to stay invested until age 85. Furthermore, the mandatory annuitization requirement was slashed from 40% to 20% of the corpus.
Sumit Shukla, MD & CEO of Axis Pension Fund, explained that the PFRDA Act does not specify a percentage, giving the regulator freedom to adjust rules for investor benefit. PFRDA is also exploring other decumulation mechanisms beyond annuities to address concerns over low yields and inflation protection.
For the corporate sector, NPS is becoming more attractive. Kuldeep Parashar, founder of PensionBox, highlighted the tax benefit under Section 80CCD(2), where an employer's contribution up to 14% of salary is deductible for the employee, even under the new tax regime.
However, a key concern remains taxation. While 60% of the corpus is tax-free, the remaining 20% (post the 80% withdrawal) may be taxed. Surya Bhatia of Asset Managers argues that for NPS to appeal widely, the entire corpus should be tax-free.
EPFO Clamps Down on Premature Withdrawals
While NPS became more flexible, the EPFO took tougher measures to preserve retirement savings. To discourage the complete withdrawal of provident fund savings, the unemployment window was significantly extended. For a full EPF withdrawal, the required period of unemployment increased from 2 months to 12 months. For the Employees' Pension Scheme (EPS), this window jumped dramatically to 36 months.
Partial withdrawal rules were simplified and consolidated into three broad categories: social security, housing, and special circumstances. A new rule mandates maintaining a minimum balance of at least 25% of the corpus at the time of any partial withdrawal, ensuring some savings continue to compound.
Madhu Damodaran, a member of the EPFO's Central Board of Trustees, indicated that EPFO 2.0 initiatives will streamline databases and integrate all accounts under a single Universal Account Number (UAN), promising smoother processes for transfers and withdrawals in the future.
Taken together, the reforms of 2025 signal that retirement planning in India can no longer be an afterthought. With changing family dynamics, the responsibility has shifted squarely onto individuals to plan early and deliberately for their financial future.
