Importance of Pensions
Pensions are crucial for maintaining economic stability and dignity after retirement, especially due to reduced earning capacity, rising health-care costs, and inflation.
Current Pension Landscape in India
- Indian pension assets constitute just 17% of GDP, lagging behind advanced economies where it is up to 80%.
- Only about 12% of India's workforce is covered by formal pension schemes.
- Coverage is disproportionate, favoring public sector and organized private sector workers.
- The informal sector relies on voluntary schemes like the National Pension System and Atal Pension Yojana, covering about 5.3% of the population in FY24.
Challenges to Expanding Pension Coverage
- Issues of scalability, sensitisation, and sustainability hinder expansion.
- Lack of awareness due to low financial literacy is a major barrier.
- The fragmented nature of existing schemes complicates coverage for informal workers.
- Examples of structured pension systems include Japan's mandatory schemes and New Zealand's universal pension.
Strategies for Improvement
- Implement a three-tiered framework:
- Mandatory basic pension guarantee, offering flat-rate contributory pension for all.
- Occupational pensions with employer-based schemes and auto-enrolment.
- Voluntary pension savings, incentivized through tax benefits and market-linked returns.
- Enhance financial literacy through school and college-level campaigns.
- Invest in digital infrastructure for ease of access and transparency.
- Ensure liquidity and sustainability through robust investment regulations.
Conclusion
The demographic shift in India necessitates a well-structured and inclusive pension system, crucial for achieving a developed economy status by 2047. Policymakers need to act now to secure the economic future for all, irrespective of occupational status.
