Under the NPS, there are four market-linked schemes. In the default scheme, only government pension fund managers—SBI Pension Funds Pvt. Ltd, UTI Retirement Solutions Ltd, and LIC Pension Fund Ltd—can manage employees’ contributions. Each fund manager must invest 85% of the contribution in fixed-income assets and 15% in equities.
“An increase in equity allocation from 15% to 25% will bring long-term benefits to members of these funds. The long-term upsides of equity markets are well-established, especially in the context of pension fund allocations. Given that the allocation is debt-heavy, it is expected that short-term volatility will be limited,” said Poornima Rao, director, Paterson Wealth, a wealth management firm.
As a result, government pension fund managers will now deploy more funds to equities. The asset under management (AUM) in the default scheme stood at ₹3.7 trillion as of 28 February 2025, which means nearly ₹37,000 crore more is expected to flow into equities. Since most central government employees prefer the default scheme, LIC, SBI, and UTI will be better placed to grow their businesses and attract more subscribers.
Other fund managers such as HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund, Aditya Birla Sunlife Pension Management, Axis Pension Fund Management, and DSP Pension Fund Managers can only offer the other three lifecycle (LC) schemes: LC-25, LC-50, and Scheme G.
Equity allocation is capped at 25% in LC-25 and 50% in LC-50. In Scheme G, 100% of the contribution is invested in government securities.
To be sure, LIC, SBI, and UTI can also run the other schemes.
Private funds want in
The people said some private fund managers were making a case to offer fund management services to government employees.
They added that the change would also apply to the Unified Pension Scheme (UPS), the new pension scheme that provides assured payouts. Besides, in all likelihood, the increase in equity allocation will be extended to state government employees as well.
That said, the opportunity is huge for government pension fund managers, which private players want to share.
“Allowing private players to manage the Central government pension schemes will drive better fund performance, innovation, and accountability, ultimately benefiting pensioners,” said Kunal Arora, founder, SKVC Consulting, a consulting firm specializing in labour laws.
Rao agrees. “While one has to factor in short-term commercial considerations, it is felt that in an expanding pension market, greater choice will be important to members,” she said.
Over the last five years, tier-1 equity funds by UTI, LIC, and SBI have delivered returns of 25.5%, 25%, and 22%, respectively. Kotak and ICICI delivered 25% returns each. HDFC and Aditya Birla offered 24% and 23.68% returns, respectively.
Notably, the equity component can go up to 75% in pension schemes meant for private employees because they can choose their allocation among equity, government securities, and corporate bonds. It’s 15% for Employees’ Provident Fund (EPF).
The increase in the equity component would occur as Deepak Mohanty, chairman of the Pension Fund Regulatory and Development Authority, prepares to retire in May.
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