India’s pension system faces a challenge in reaching a significant portion of the workforce, particularly those working in the informal sector, which accounts for around 80% of the country’s employment.
Despite various efforts to expand access to the National Pension Scheme (NPS), this vast sector remains largely outside the scope of formal retirement savings systems.
Deepak Mohanty, the chairperson of the Pension Fund Regulatory and Development Authority (PFRDA), highlighted the need to address this gap.
At the launch of the Association of NPS Intermediaries, he explained that while the number of individual options for joining the NPS has increased, many workers in the informal sector still lack access to the scheme.
The informal sector is a significant part of India's economy, but workers there face unique challenges when it comes to retirement planning. Mohanty pointed out that the informal sector lacks statutory requirements for pension contributions, creating a substantial gap in the nation’s pension coverage.
However, the launch of the new association, which includes pension fund managers, custodians, retirement advisers, and others, is seen as a way to foster collaboration and promote the growth of the NPS.
This initiative aims to improve the welfare of NPS subscribers, particularly by expanding its reach to more of the workforce, including those in informal jobs.
The PFRDA chairperson also highlighted the impressive growth of the NPS in recent years. NPS fund managers are currently handling investments worth ₹14 lakh crore across approximately 80 million active accounts.
This number is expected to exceed ₹15 lakh crore by the end of the year, reflecting growing interest and confidence in the pension scheme. However, India’s overall pension assets remain relatively small compared to global standards.
At just 16-17% of the country’s GDP, India’s pension assets are much lower than the 80% seen in OECD countries. The NPS alone accounts for about 4% of GDP, underscoring the need for further expansion.
Another aspect of the pension system that is gaining attention is the Vatsalya NPS retirement saving scheme, which focuses on children's retirement savings.
Nearly 75,000 people have already been onboarded into the scheme, which shows promise in increasing long-term financial security from an early age.
As India’s population continues to age, the demand for better pension systems and coverage will only grow.
India has the youngest workforce globally, with a median age of just 29 years, according to Rama Mohan Rao Amara, Managing Director of the State Bank of India.
This demographic advantage presents a significant opportunity to expand pension coverage. However, the challenge will be in ensuring financial security for the ageing population as India’s senior citizens are projected to grow significantly in the coming years.
By 2026, the number of senior citizens is expected to reach 170 million, and by 2031, it could rise to 200 million.
A key suggestion to streamline India’s pension system came from Amitabh Chaudhry, the CEO of Axis Bank, who proposed the unification of various pension-related products, including the Employees’ Provident Fund (EPFO), NPS, superannuation funds, and insurance or mutual fund pension products.
By creating a single regulatory and investment framework for these products, it could simplify the decision-making process for customers and improve overall regulation of the pension system.
Chaudhry also advocated for more flexibility for salaried employees, allowing them to choose between EPFO and NPS based on their financial goals. This would provide greater alignment between the choices employees make and their long-term retirement objectives.
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