India’s Retirement Divide: Why One Pension Solution Cannot Fit Every Indian

By Vikas Seth, CEO, Aditya Birla Sun Life Pension Fund Management Limited

Retirement is quietly becoming India’s most consequential financial problem. Nobody is talking about it loudly enough. Walk into any co-working space in Bengaluru, and you’ll find a twenty-six-year-old freelance designer who hasn’t thought about retirement once. Drive an hour outside Nagpur, and you’ll meet a sixty-year-old sugarcane farmer whose only retirement plan is his son, a son who has since moved to Pune. Somewhere between them is a forty-two-year-old homemaker in Jaipur who spent two decades raising children while her husband’s EPF quietly accumulated. She has nothing in her name.

These are not edge cases. They are India.

The Demography Trap Nobody Is Talking About

India is celebrated, rightly, for its youth. A median age of 28. A demographic dividend that economists have been writing about for three decades. But that same bulge of young people will be old people in thirty years, and the systems to support them barely exist.

Life expectancy has climbed from 58 in 1990 to over 70 today, reflecting India’s development progress and improving access to healthcare. At the same time, longer lifespans, rising healthcare costs, nuclear families and urban migration are changing how families need to plan for later life. This makes retirement readiness an important national priority and an opportunity to strengthen the systems that support ageing Indians.

The dependency ratio, the number of non-working people relative to those working, starts worsening sharply after the 2040s. That sounds distant until you do the arithmetic: someone who is 35 today will be 55 then, with perhaps a decade left in the workforce and very little saved. The window to build retirement habits, both in individual households and at a systemic level, is not decades away. It is now.

With India’s workforce still largely outside formal pension arrangements, the opportunity now is to extend the reach of existing platforms and bring more workers into long-term retirement security.

The Formal System Only Covers A Sliver

To be fair, India has built something. The Employees’ Provident Fund has been around since 1952 and covers tens of millions of salaried workers in larger organisations. The National Pension System, launched in 2004, has grown steadily and now has over 1 million (including Atal Pension Yojana) subscribers. Atal Pension Yojana targets low-income workers with a simple, government-backed annuity.

These are real achievements and a strong foundation to build on. The next opportunity is to adapt this architecture for a labour market where many people work outside traditional salaried employment, move across jobs and cities, or earn through self-employment and platforms.

India’s informal economy accounts for a large share of its workforce. Seasonal farm labour, construction workers who move between states, women who run small kitchens or stitch garments at home, drivers and delivery executives on platform contracts, and small shopkeepers all represent important groups that can benefit from more flexible, portable and easy-to-access pension solutions.

The Faces Of Retirement Insecurity

Retirement planning in India is not one single challenge. It reflects several different life situations, income patterns and family structures. Recognising these differences can help policy and product design reach more people effectively.

The gig and platform worker is perhaps the most visible new category. Millions of delivery executives, cab drivers, freelancers and taskers now earn livelihoods through apps but exist in a regulatory grey zone. They are not employees, so no one contributes to their provident fund. They are not quite self-employed either, in the way a chartered accountant is. Their income is often decent but irregular. Retirement savings require consistency, and consistency is exactly what gig income resists.

The self-employed professional and SME owner faces a different version of the same problem. A plumber, a small manufacturer, a woman running a salon — they have income but no employer forcing a monthly retirement contribution. What they lack is not money. Its structure. Without automatic deductions or a mandated product, retirement savings stay perpetually on the to-do list, bumped each month by something more urgent.

Agricultural and rural workers need solutions that respect seasonal income patterns and local realities. Simple, trusted and affordable pension pathways, supported through public programmes and last-mile distribution, can make long-term saving more practical for this important segment.

Migrant and contractual workers benefit most from portability and continuity. As workers move across employers, cities and states, pension systems that travel with them can help preserve savings and make every contribution count over a lifetime.

Homemakers represent a particularly important blind spot. India has over 160 million women who are not formally employed. They have no income in their own name and no mechanism to build retirement savings independently. Their financial security in old age depends entirely on a spouse’s assets and a marriage’s stability — a dependency that is both economically precarious and, for many women, quietly understood. Giving homemakers the right to contribute to a pension account, with a mechanism to fund it jointly or from household income, is not a feminist talking point. It is basic risk management for half the population.

Younger workers — Gen Z and millennials in the ‘sandwich generation’ — face pressure from both ends. They are expected to support ageing parents while managing their own rising living costs, EMIs, and childcare expenses. Retirement savings get squeezed in the middle. Unlike their parents’ generation, they are unlikely to own homes outright or have defined-benefit pensions. The math of their retirement requires them to start earlier than any previous generation. Most are not.

From One-Size-Fits-All To Lifecycle Pension Design

The next phase of India’s pension reform can build on this strong foundation by creating distinct entry points for different life stages, income patterns and financial needs. The reform agenda already points in that direction and can be seen as a coherent ladder of coverage that supports Indians across their lifetime. Below is the direction on how some of the new changes brought in by PFRDA can be aligned to lifecycle pension design:

First, NPS Vatsalya can make retirement savings a family habit before adulthood. By allowing parents and guardians to contribute for minors, it gives long-term compounding a longer runway and introduces pension thinking at the household level, not only at the point of employment. Its value is not just in the account balance; it is in normalising the idea that retirement security starts early.

Second, NPS Sanchay can become a powerful bridge for India’s informal workforce. A simplified NPS variant can make fund selection and asset allocation easier for workers who may not have access to financial advisers or employer-led benefit systems. For self-employed workers, gig workers, shopkeepers, drivers, domestic workers and small service providers, simplicity can support adoption and inclusion.

Third, NPS Swasthya can recognise the close link between retirement adequacy and healthcare preparedness. Whether through an integrated health-savings sleeve, health-linked withdrawal rules or coordinated protection with insurance products, such a proposition can help families plan more confidently for both longevity and medical needs.

Fourth, the exposure draft on grievance redressal is an important step towards a more subscriber-first operating model. Pension products depend on long-term trust, and a clear redressal framework can strengthen that trust through defined timelines, vernacular access, digital tracking, escalation routes and accountability across intermediaries.

Fifth, withdrawal and exit guidelines can continue to balance long-term savings discipline with practical flexibility. Clear rules on partial withdrawals, premature exit, deferment, annuitisation and continuation can help subscribers understand the product better while giving them confidence that the system can support important life events such as education, disability, medical emergencies, migration and changing employment patterns.

Finally, the Multiple Schemes Framework with a 15-year investing period can help move NPS from a single retirement product to a lifecycle platform. A long investing horizon allows pension funds to design differentiated options for younger savers, mid-career workers and those approaching retirement. If implemented well, MSF can create choice without overwhelming subscribers, offering default pathways that are appropriate to age, risk capacity and income stability.

Together, these reforms point to a more inclusive pension architecture: one that begins with a child, supports the informal worker, strengthens healthcare preparedness, improves subscriber experience, enables sensible exits and offers long-horizon investment choice. This is the positive shift India is already moving towards, a system that recognises how differently Indians live, work, earn and age.

The Decade That Decides

India has a valuable window to act. The population that is young today will age over the coming decades, and family structures are also evolving. This makes the current phase an important opportunity to deepen pension coverage, encourage early saving and strengthen retirement confidence across households.

What can change is the architecture, who the system sees, what it asks of them, and how it reaches them. The answers look different for a farmer in Vidarbha than for a software contractor in Hyderabad than for a homemaker in Meerut. That is the point. India’s retirement problem is not one problem, and it cannot have one solution.

The countries that built broad retirement security did so by expanding coverage cohort by cohort, product by product and channel by channel over time. India now has the scale, digital infrastructure and policy momentum to do the same — and to shape a retirement system that is inclusive, flexible and built for the diversity of its people.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)