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Informist, Thursday, Oct. 1, 2026

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The Pension Fund Regulatory and Development Authority of India hopes that the government and the National Payments Corp. of India will cap the merchant discount rate at INR 5 per transaction for National Pension System contribution made through the Unified Payments Interface, Chairperson S. Ramann said. "We are in discussion on this. And hopefully, we should be able to get the best solution that is possible," Ramann told Informist Thursday. 

 

Last month, the government announced that a merchant discount rate of 0.4% would be levied on merchant payments made through UPI on transactions above INR 2,000 from Oct. 15. Incidentally, around the same time, PFRDA launched a new scheme – NPS Tatkal, under which new subscribers to the National Pension System can join through UPI platforms, starting with NPCI's BHIM UPI application. So far, five banks have joined the plan--State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, and IDFC FIRST Bank.

 

While introducing the merchant discount rate, the NPCI said transactions above INR 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel, and agricultural inputs, would instead attract a flat merchant fee of INR 5 per transaction. It also specified railways, telecom, and insurance among the merchant categories covered by the flat fee. 

 

There is "of course" a case to get included in the pool of transactions above INR 2,000 that attract a flat INR 5 fee, Ramann said. The merchant discount rate, commonly called MDR, is a fee a merchant pays to a bank to process digital payments through credit cards, debit cards, or UPI. Person-to-person transactions do not attract this fee, and for person-to-merchant transactions above INR 2,000, it is capped at INR 300 for transactions of INR 75,000 and above.

 

According to Ramann, NPS Tatkal will benefit from the architecture on which UPI platforms are built. Contribution to the NPS will need recurring contributions and "UPI providers are very good at doing that," he said. "Because they know what are your transactions and whether you have contributed or not. So they'll be nudging," he said. 

 

The idea behind the scheme was to change "the customer behaviour and the customer perception," he said. "That it is easy for me to do long-term savings. I just click once and it's done."

 

Prior to this, one could not directly enrol or open an NPS account through the BHIM UPI application but could make subsequent contributions through it. To formally join the NPS, subscribers had to first register online or offline to get their Permanent Retirement Account Number. With this unique account number, or registered mobile number, subsequent investments under NPS can be directly made through the BHIM app. 

 

The government introduced the defined-contribution National Pension System on Jan. 1, 2004, replacing the defined-benefit old pension scheme. The NPS is a market-linked annuity scheme under which individuals contribute regularly during employment and receive a pension linked to the fund performance upon retirement. It is mandatory for central government employees, while others may join voluntarily.

 

PFRDA's NPS Tatkal comes as pension coverage in India continues to be inadequate. India's pension system has expanded steadily, but overall coverage remains modest relative to the size of the workforce, the Economic Survey for FY26 had said. As of Jun. 30, NPS had 22.40 million subscribers with assets under management worth INR 17.27 trillion. 

 

The chairperson said that PFRDA is working on tweaking the investment formula of the pension corpus to ensure inflation-adjusted and future-ready "high-yielding" returns. While PFRDA has expanded the instrument mix in which the corpus is invested, it remains tilted towards government securities and equity markets. "When equities go down, unlisted capital may not go down," Ramann said.

 

Alternative investment funds, real estate investment trusts, and infrastructure investment trusts are emerging as new instruments where the pension corpus could be invested in a big way, he said. Currently, private pension funds can invest up to 5% in AIFs, while government pension funds can invest up to 1%. "We are saying that this is a small start," he said. 

 

"I would see InvITs increasing that much more. I think it is very important from an infrastructure point of view," he said. "So, if we were to look at the AIFs and how they are panning out, we are looking at AIFs more from a portfolio point of view that the portfolio needs multiple assets for better resilience."

 

Pension fund managers handle the pension fund corpus under the NPS and Unified Pension Scheme. Currently, 10 pension fund managers are actively managing the pension corpus – LIC Pension Fund Ltd., SBI Pension Funds Pvt. Ltd., UTI Pension Fund Ltd., HDFC Pension Fund Management Ltd., ICICI Prudential Pension Funds Management Co. Ltd., Kotak Mahindra Pension Fund Ltd., Aditya Birla Sun Life Pension Fund Management Ltd., Tata Pension Fund Management Pvt. Ltd., Axis Pension Fund Management Ltd., and DSP Pension Fund Managers Pvt. Ltd. Four more pension funds have recently got approval to manage the corpus – Bank of Baroda, Motilal Oswal Asset Management Co., PPFAS Asset Management Pvt. Ltd. and Bajaj Life Insurance Ltd.

 

In July, PFRDA opened the 'on-tap' registration window to on-board pension fund managers after a gap of over four years. Ramann said that so far, no foreign pension fund has sought registration to open shop in India.  End

 

Edited by Avishek Dutta

 

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