Budget 2026: 5 ways NPS can be made more lucrative to widen pension coverage – top points
By Sriram IyerAs India aspires to become a developed economy by 2047, one of the most critical yet under-discussed pillars is retirement security.
Despite rapid financialisation of household savings, India’s pension assets stand at only about 14% of GDP, significantly lower than comparable economies. The upcoming Union Budget offers an opportunity to accelerate India’s journey towards becoming a ‘pensioned society’ by strengthening and widening the National Pension System (NPS).1.
Re-introducing tax incentives for the self-employed under the new tax regime can provide a much-needed nudge towards retirement planning.Nearly 58% of India’s workforce is self-employed, as per the Economic Survey 2024-25.
Unlike salaried employees—who benefit from EPF, corporate NPS and superannuation—the self-employed largely remain outside formal retirement systems.
Section 80CCD(1B), which allowed an additional deduction of ₹50,000 for NPS contributions, acted as a strong behavioural trigger for this segment under the old tax regime. Its absence in the new tax regime has diluted that incentive.
Re-introducing 80CCD(1B) under the new regime, with a higher limit of up to ₹1.2 lakh annually, would encourage early participation in retirement savings.
Global experience shows that upfront tax incentives play a decisive role in driving adoption of long-term products like pensions.
Over time, this would reduce old-age dependency and fiscal pressures on the State.2.
Formalising retirement savings for gig and platform workers through mandatory contributions deserves priority.India’s gig workforce—estimated at nearly 1 crore today and projected to reach 2.35 crore by 2029-30 —represents a fast-growing but vulnerable segment.
While the Code on Social Security, 2020 recognises gig and platform workers and provides for insurance and health benefits, structured retirement savings remain absent.
A modest mandatory contribution of 2–3% by digital platforms into NPS can meaningfully address this gap.
Given the nature of gig work, voluntary retirement savings often take a back seat to immediate income needs.
A default, system-driven contribution mechanism would help these workers build a long-term corpus without affecting their day-to-day liquidity.
This step would also align well with the Government’s broader inclusion and social security agenda.3.
Revisiting the ₹7.5 lakh cap on tax-exempt employer contributions can materially improve retirement adequacy for salaried employees.Currently, the combined employer contribution to EPF, superannuation and NPS is capped at ₹7.5 lakh per annum.
In practice, a significant portion of this limit is consumed by EPF and superannuation, leaving limited headroom for NPS contributions – even though NPS allows up to 14% of basic salary as employer contribution.
As a result, senior management and key decision-makers often find NPS less attractive, which in turn affects adoption across organisations. Removing NPS from this overall cap—or creating a separate sub-limit for NPS—would enhance retirement replacement rates, potentially increasing them to around 65% when combined with other retirement instruments.
This would also encourage leadership within corporates to actively champion NPS adoption.4.
Making NPS tie-up mandatory for private sector employers can significantly expand coverage.While EPF is mandatory, NPS remains optional, despite its low cost, transparency and market-linked returns.
Today, only about 21,000 corporates offer employer NPS, compared to nearly 8 lakh establishments registered with EPFO.
Making NPS tie-up mandatory for companies above a certain workforce threshold – say, 100 employees – would substantially widen coverage among private sector employees.
A blended approach combining EPF, superannuation and NPS can meaningfully enhance long-term retirement outcomes, while still preserving choice and diversification.5.
Enabling interoperability between EPF and NPS would provide flexibility and empower individual choice.India’s workforce is young, mobile and increasingly financially aware.
While EPF offers fixed returns and capital protection, NPS provides market-linked growth, low costs and the flexibility to customize asset allocation based on age and risk appetite.
Although policy intent to allow tax-neutral transfers from recognised provident funds to NPS was articulated earlier, operational enablement – especially for EPF – remains incomplete. Allowing seamless, tax-neutral transfers between EPF and NPS would give employees the freedom to design retirement solutions aligned to their life stage and financial goals, while also channelising long-term savings into productive capital formation.The Union Budget has a unique opportunity to place retirement security firmly at the center of India’s economic agenda.
Targeted tax incentives, inclusion of emerging workforce segments, rationalisation of contribution limits, and greater system flexibility can collectively deepen NPS adoption.
These measures would not only strengthen household financial resilience but also support long-term capital formation-creating a virtuous cycle for both citizens and the economy.(Sriram Iyer is Managing Director & CEO, HDFC Pension)
