Paper: GS – II, Subject: Society and Social Justice, Topic: Social Empowerment and Welfare, Issue: Steps to ensure inclusive pension system in India.
Context:
“Pension systems are vital for ensuring financial security and dignity in old age. India’s pension ecosystem is fragmented, with poor coverage, especially in the informal sector. Urgent reforms are needed to create a universal, inclusive pension system that is sustainable and accessible to all.”
Key Highlights:
Current Status of Pension System in India:
Low Coverage:
- Indian pension assets constitute just 17% of GDP (vs. ~80% in advanced economies).
- Only 12% of workforce is covered under formal pension schemes.
- Informal sector has voluntary coverage under NPS and Atal Pension Yojana (APY), covering only 5.3% of population (FY24).
- Disproportionate Benefits: Organised workers (public & private) have better protection whereas informal and gig economy workers are largely excluded.
- Exclusion of Informal Sector: 85% of labour force is informal, contributing to over half of GDP. Exclusion of them poses both policy and economic risks, including a looming old-age poverty crisis by 2050.
- Fragmentation: Multiple uncoordinated pension schemes create confusion and inefficiencies. Lack of unified regulatory oversight and design create further problems.
- Low Awareness: Informal workers unaware or uninterested in pensions due to complexities of schemes. As per Mercer CFA Index (2024), India scored 44% in adequacy, indicating poor pension performance.
- Poor financial literacy: Lack of school-level financial literacy education complicated by no culture of retirement planning.
| Global Best Practices:Japan: Mandatory flat-rate contributory pension for all residents aged 20–59, including self-employed and informal workers.New Zealand: Universal flat-rate public pension post age 65 with 10-year residency rule.UK: Auto-enrol opt-out occupational pensions.Nigeria: Digital infrastructure and sensitisation campaigns.Denmark: Occupational pension funds + public pension support via private funding. |
Reforms needed design an inclusive pension system:
Three-Tiered Framework:
- Tier 1 Mandatory basic pension for all, flat-rate, universal.
- Tier 2 Voluntary/mandatory occupational pensions with auto-enrolment.
- Tier 3 Private savings incentivised via tax benefits & flexible investment tools
Promoting Awareness & Literacy:
- Introduce pension education in school curriculum.
- Run financial literacy campaigns at grassroots.
Institutional Reforms:
- Merge fragmented schemes under a unified pension regulator.
- Establish robust digital pension platforms for ease of access.
- Ensure annual pension disclosures to increase transparency.
Ensuring Sustainability & Liquidity:
- Pension fund liquidity is crucial for long-term stability.
- Reforms must ensure better fund performance, long-term investment regulations and financial incentives to improve adequacy.
Implications:
A well-designed pension system will enhance retirement security, prevent old-age poverty and support economic growth via domestic savings.
Conclusion:
India must design a truly inclusive pension system. Inclusion of informal sector, unified governance, and financial literacy are key. There is a need to ensure social equity in retirement, regardless of occupation type.
https://www.thehindu.com/opinion/op-ed/design-an-inclusive-pension-system/article69705925.ece
La Excellence IAS Academy, the best IAS coaching in Hyderabad, known for delivering quality content and conceptual clarity for UPSC 2025 preparation.
FOLLOW US ON:
◉ YouTube : https://www.youtube.com/@CivilsPrepTeam
◉ Facebook: https://www.facebook.com/LaExcellenceIAS
◉ Instagram: https://www.instagram.com/laexcellenceiasacademy/
GET IN TOUCH:
Contact us at info@laex.in, https://laex.in/contact-us/
or Call us @ +91 9052 29 2929, +91 9052 99 2929, +91 9154 24 2140
OUR BRANCHES:
Head Office: H No: 1-10-225A, Beside AEVA Fertility Center, Ashok Nagar Extension, VV Giri Nagar, Ashok Nagar, Hyderabad, 500020
Madhapur: Flat no: 301, survey no 58-60, Guttala begumpet Madhapur metro pillar: 1524, Rangareddy Hyderabad, Telangana 500081
Bangalore: Plot No: 99, 2nd floor, 80 Feet Road, Beside Poorvika Mobiles, Chandra Layout, Attiguppe, Near Vijaya Nagara, Bengaluru, 560040
