Inclusive Pension System for India
Kartavya Desk Staff
Syllabus: Pension
Source: TH
Context: The Economic Survey 2025-26 highlighted that India’s pension assets are only 17% of GDP, with less than 12% workforce coverage.
• Experts call for an inclusive national pension system to address rising old-age dependency.
About Inclusive Pension System for India:
What is a Pension System?
• A pension provides financial security after retirement, ensuring income stability when earning capacity declines.
• As per Economic Survey 2025-26, India’s pension assets equal 17% of GDP vs 80% in OECD nations.
• Current coverage: Just 12% of workforce, and 5.3% of population covered by NPS and APY combined (FY24).
• Old-age dependency ratio projected to reach 30% by 2050, heightening the urgency for pension reforms.
Need for an Inclusive Pension System in India:
• Rising Old-Age Dependency: By 2050, India’s old-age dependency will rise to 30%, risking a future old-age poverty crisis.
• Gig and Informal Workforce: 85% of workforce is informal, generating over 50% of GDP, yet remains largely outside formal pension safety nets.
• Financial Security for All: A universal pension system would protect low-income households, enhance savings, and reduce dependency on public funds.
• Sustainable Growth: Inclusive pensions are key to sustainable economic growth, vital for India’s target to be a developed economy by 2047.
Initiatives Taken by India:
• National Pension System (NPS): A voluntary, market-linked scheme, now covering 4.5% of GDP assets.
• Atal Pension Yojana (APY): Aimed at the informal sector, with 629 lakh subscribers as of FY24, but 93.7% opt for ₹1,000/month pension due to affordability.
• Unified Pension Scheme (UPS): Launched in Aug 2024 for govt employees, blending old and new systems with minimum pension ₹10,000.
• Gender Inclusion: Share of female APY subscribers grew from 37.9% in FY16 to 52% in FY24.
• NPS Vatsalya: Extended coverage to children, aiming for early financial literacy and inclusion.
Issues in Indian Pension System:
• Low Coverage: Only 12% of workforce covered and NPS and APY reach only 5.3% of total population.
• Fragmentation: Multiple parallel schemes cause complexity and inefficiency.
• Voluntary Opt-In: APY is voluntary and low awareness and financial literacy hinder broader adoption.
• Inadequacy: Adequacy Index dropped from 41.9 (2023) to 34.2 (2024) in Mercer Global Pension Index.
• Fiscal Sustainability: Risks of asset-liability mismatch as demographic profile shifts, risking pension fund solvency.
Measures to Build an Inclusive Pension System:
• Unified Tiered Framework: Integrate schemes under a three-tier system — basic mandatory pension, employer-based pensions (opt-out), and voluntary savings.
• Mandatory Basic Pension: Introduce a guaranteed flat pension for all workers, irrespective of employment status.
• Financial Literacy Drives: Embed superannuation education in schools (like Australia); use UPI-enabled pension payments to boost participation.
• Tech-Driven Accessibility: Leverage digital platforms and apps for seamless enrolment, inspired by UPI’s success.
• Behavioural Nudges: Use auto-enrolment and default options (like UK’s opt-out model) to expand participation.
• Private Sector Engagement: Encourage private pension funds to complement public pensions and ensure long-term liquidity.
Conclusion:
India’s future demographic shift demands an inclusive, sustainable pension system to ensure financial dignity for retirees. With smart reforms, unified regulation, and tech-driven outreach, India can secure broad-based pension coverage for all sectors. The time to act is now — to build resilience before old-age poverty becomes an economic crisis.
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