NPS may soon use dual valuation methods for long-term govt securities; what is it?

The Pension Fund Regulatory and Development Authority (PFRDA) has released a comprehensive consultation paper proposing a dual valuation framework aimed at enhancing transparency and stability in NPS and APY schemes.

The paper, titled ‘Alignment of Valuation Guidelines with the core objectives of Long-only Funds when investing in Government Securities and calculation of Net Asset Value (NAV)’, proposes the adoption of a dual valuation framework for long-dated government securities held in NPS/APY.

“The framework proposed is part of PFRDA’s ongoing commitment towards improving governance, protecting subscriber interests and contributing to India’s broader financial and infrastructural growth,” the Ministry of Finance said in a release on Tuesday, October 21.

What this means

The paper suggests using two ways to value long-term government securities (bonds) held in NPS/APY:

• Accrual method: Based on the interest earned over time.
• Fair market value method: Based on the current market price.

Key purposes

The three key purposes of the dual valuation framework (accrual and fair market) proposed in the consultation paper are:

• Show steady growth of pension savings to subscribers, depicting simplified pension wealth accumulation.

• Reduce the effect of short-term interest rate changes on the scheme’s value, since such fluctuations do not materially affect subscribers during the accumulation phase.

• Align pension fund investments with long-term capital formation and fund productive, long-gestation infrastructure assets to boost stakeholder confidence.

In short, the proposal aims to make pension savings look more stable and meaningful for investors, and support long-term economic development in the country.

“PFRDA is seeking feedback on the proposal from all stakeholders, including NPS participants, prospective subscribers, pension funds, industry experts, academia and the general public,” the release said.

The authority has requested stakeholders to submit their input and feedback by November 30, 2025.

Enhancing NPS

In another consultation paper released earlier in September, ‘Enhancing the National Pension System: Proposals for Flexible, Assured and Predictable Pension Schemes’, the PFRDA proposed three schemes under the NPS framework to improve the post-retirement income security of subscribers.

• Pension Scheme-1 (Non-Assured, Flexible Decumulation): This offers flexibility with a step-up systematic withdrawal plan (SWP) and annuity. It is focused on maximising pension wealth.

• Pension Scheme-2 (Assured Benefit): This provides a guaranteed pension amount, adjusted periodically for inflation based on CPI-IW.

• Pension Scheme-3 (Assured through Pension Credits): This introduces “Pension Credits”, where each credit ensures a fixed monthly payout. It makes the system more predictable and goal-oriented.

For this paper, stakeholders can submit their comments, inputs and feedback by October 31.

Furthermore, the government has granted a two-month extension for eligible central government employees and past retirees to opt for the Unified Pension Scheme (UPS), switching from the National Pension System (NPS). The deadline for this is November 30, 2025.