With the majority of its working population employed under the informal sector, India has taken bold strides in promoting financial inclusion through its pension schemes. Driving financial literacy and accessibility, these schemes ensure secure retirement for millions of people in the country.
The government of India has introduced a range of pension schemes, including the National Pension System (NPS), the Employees’ Provident Fund (EPF), the Atal Pension Yojana (APY), Pradhan Mantri Vaya Vandana Yojana(PMVVY), the Indira Gandhi National Old Age Pension Scheme (IGNOAPS), Indira Gandhi National Widow Pension Scheme (IGNWPS), Indira Gandhi National Disability Pension Scheme (IGNDPS) etc., tailored to different income groups and employment scenarios.
These schemes are acting as catalysts for financial inclusion by compelling individuals to enter the formal financial system. “The pension sector too has been taking rapid strides since the introduction of the National Pension Scheme (NPS), more recently, the Atal Pension Yojana (APY),” the Economic Survey 2022-23 stated.
“The expansion of the sector has been aided by government measures such as relaxation in CCS (Pension) Rules, integration of electronic Pension Payment Order (e-PPO) with DigiLocker, and relaxation in the timeline for submitting Digital Life Certificate,” it added.
Growth of Pension Sector in India
According to the Economic Survey 2022-23, there is a huge scope for growth in India’s pension sector as per capita income is expected to rise further as the economy transitions to a high-middle-income country.
“India’s pension sector provides a flexible mode of old age income-security for salaried employees and the common person. In the recent five years, FY18 to FY22, the number of subscribers has multiplied over three-fold, led by APY, and AUM by over four-fold, led by NPS. The future expansion in NPS is expected to emanate from the private sector, both the salaried and self-employed,” the Economic Survey 2022-23 stated.
However, as financial literacy is a significant challenge, PFRDA, under the aegis of the Financial Stability and Development Council (FSDC), has taken several steps to enhance financial education so that consumers can make informed decisions and reap the benefits of the formal financial sector.
Meanwhile, according to a recent report by the Reserve Bank of India (RBI), expenditure on pensions by Indian States has increased from 0.6 percent of GDP in the early 1990s to 1.7 percent of GDP in 2022-23 (BE), outstripping the growth of revenue receipts.
Old age and financial independence
To make the enrollment process and fund tracking easier, India’s pension schemes have embraced technological advancements. This digital transformation extends the reach of these schemes to remote and underserved areas, promoting accessibility and convenience. Notably, you will not lose your retirement savings while switching jobs or relocating under these schemes which ensures the continuity of savings.
Employment in the informal sector lacks the built-in pension benefits, leaving many workers financially vulnerable in their old age. Therefore, making pension schemes play a significant role in providing a financially independent life. As the country continues to evolve, the pension schemes will play a major role in ensuring financial security for all its citizens.