Corporate NPS: why India needs to flip the retirement savings default

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Ask any HR head or CFO of a large Indian company a simple question: how many of your eligible employees have opted in to corporate NPS? The answers are strikingly consistent—and strikingly low. Despite more than 29,000 companies enrolling for the scheme, participation among eligible private-sector employees continues to stagnate at about 5–6%.

The corporate NPS ecosystem is robust—attractive tax incentives, low fund management charges, strong long-term returns and flexibility unmatched by most retirement instruments. And yet, for millions of salaried Indians, it remains underutilized. The core issue is design: corporate NPS relies on employees voluntarily opting in. Behavioural economics has taught us repeatedly that voluntary enrolment schemes, no matter how beneficial, struggle to overcome inertia.

Consider the arithmetic. Under Section 80CCD(2) (referenced as Section 124 in the IT Act 2025), employees under the new tax regime can receive employer NPS contributions of up to 14% of basic salary, tax-free, within the combined ₹ 7.5-lakh annual cap covering PF and superannuation contributions. Raising the limit from 10% to 14% was a quiet but significant structural push.

Add to this the performance track record: equity schemes delivering ~14% annualised returns over the past decade, and debt schemes yielding 8–9%—at fund management costs that are sometimes a thirtieth of what actively managed retail mutual funds charge. The ability to switch asset allocations or fund managers at no cost further amplifies its attractiveness. Few products combine efficiency, transparency and long-horizon compounding as elegantly as NPS.

Because human beings default to inertia. EPF thrives because membership is automatic from day one. NPS requires a conscious decision—and conscious financial decisions are easily postponed, even when employees fully understand the tax advantage.

Participation today also reflects an odd skew. Senior executives often have their 80CCD(2) limit consumed by employer PF contributions. Entry-level employees, understandably, prioritise take-home pay. The cohort that stands to benefit most—the mid-career workforce—often falls through the cracks of traditional communication campaigns.

The recent EPFO 2026 notification adds another dimension: employees can now make non-matching contributions and decide how much they want to contribute beyond the mandatory ₹ 21,600 per year. For mid-to-senior professionals, this opens the door to redirecting EPF savings to NPS—potentially creating a significantly larger retirement corpus without reducing take-home pay, given NPS’s higher return potential.

India does not need new legislation or a redesigned product. It needs a redesigned onboarding experience. Corporate NPS should adopt automatic enrolment with a clear option to opt out, rather than the reverse.

Global evidence—from the UK’s auto-enrolment programme to multiple OECD pension systems—is unequivocal: flipping the default dramatically increases participation while preserving individual choice.