Considering the increasing number of elderly population in the country, their financial security in old age can no longer be ignored. A regular income or pension in old age is becoming a necessity. Various factors including increasing healthcare costs, overall inflation, and changing family structures require people to plan for old age and save. The need of the hour is to ensure a sustainable pension for all so that they can spend their golden years with dignity.
At the 24th Global Conference of Actuaries on March 18, 2025, Deepak Mohanty, Chairperson of the Pension Fund Regulatory and Development Authority (PFRDA), said, “In the economic context of Amrit Kaal, where we are working towards becoming a developed nation by 2047, the financial security of our ageing population ought to be a key pillar of this progress. For us, this translates into ‘Pension for all’ by 2047—a commitment to ensuring that every citizen, whether from the formal or informal sector, has the means of a reliable retirement income”.
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He emphasised that pension is not just a product but a necessity. It should be adequate to meet essential expenses, particularly healthcare costs, in old age.
Pension Coverage In India:
In India, pension coverage is limited. Around 80 per cent of the workforce is employed in the unorganised sector with no pension security. Citing the Economic Survey report 2024-25, Mohanty highlighted that 58.4 per cent of employed people and 19.8 per cent of casual labourers do not have access to a formal pension scheme or financial security.
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The lack of pension security for unorganised sector workers is a serious concern. The E-Sharam portal, which is for such workers, has 305 million workers registered on it, highlighting the pension coverage gap.
Pension in other countries:
However it is not only in India, the Asia-Pacific countries are also facing pension issues. According to the Organisation for Economic Co-operation and Development (OECD), inadequate pension amount and coverage is a common issue in these countries. In many countries, contributory pension schemes exist but the participation rate is below 10 per cent.
In advanced countries, people have access to three sources of social security:
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- Basic social security
- Personal pension
- Occupational pension
Despite these sources of income, post-retirement income is still inadequate for many.
Lack Of Adequate Pension In India:
Regardless of several existing pension schemes like the Employees’ Provident Fund (EPF), National Pension System (NPS), Atal Pension Yojana (APY), and Pradhan Mantri Shram Yogi Maandhan (PM-SYM) scheme, their coverage and the pension amount is not sufficient.
Another point is that:
- Low-income people are covered by several government pension schemes
- The wealthy can afford personalised financial advice
- The middle class often suffers the most due to the lack of pension security
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Mohanty stressed two points for everybody desiring to have adequate pension security:
One source of income is not adequate in old age
Retirement savings should be self-initiated as early as possible to reap the benefits of compounding
Contributory Pension Schemes: APY And NPS
While programmes like APY already exist specifically designed for low-income individuals in the unorganised sector, NPS is a more flexible scheme for all Indians from 0 to 70 years.
Currently, more than 16.4 million subscribers are enrolled in these contributory pension schemes.
Despite their popularity, there is room for their expansion, especially among private sector employees, small business owners, and self-employed individuals.
Challenges In Adoption Of Pension Schemes:
According to Mohanty, the ‘unattractive annuity’ is a concern, which sometimes acts as a deterrent in NPS adoption. The 40 per cent NPS corpus is mandatory to be annuitised. Typically, the annuity rate is 4-5 per cent, which is not very attractive and that is where actuaries can work to design innovative products that can hedge against inflation.
Actuaries' role becomes more crucial with the implementation of a unified pension scheme (UPS) which is also a contributory scheme but unlike NPS promises a guaranteed pension.
Expanding pension coverage has become critical now as the senior population is projected to almost double from 10.5 per cent to 20.8 per cent by 2050. The increasing old-age dependency ratio, and changing traditional family structure underscore the need to ensure an adequate pension for all.
Mohanty emphasised that to achieve the target of ‘Pension for All’ by 2047, there is a need to expand pension coverage. This can be done by providing informal sector workers some incentives to make them contribute to pension schemes. At the same time, the middle class needs to be sensitized towards financial literacy and concepts like the power of compounding, etc. In addition to this, more innovative products, variable annuities, and leveraging technology also need to be explored.
In short, to achieve the target of ‘pension for all’ the role of actuaries, technology, and governance cannot be ignored.
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