Inclusive Pension System in India : THE HINDU EDITORIAL SIMPLIFIED

 Inclusive Pension System in India

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1. Why Pensions Matter

• Help people live with dignity and stability after retirement.

• Protect against less income, high medical costs, and inflation.

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2. Current Pension Situation in India

• India’s pension funds = 17% of GDP (advanced countries: up to 80%).

• Only 12% of workers have formal pensions.

• Public & private sectors have many schemes.

• Informal sector depends on voluntary schemes like:

  • National Pension System (NPS)

  • Atal Pension Yojana (APY)

  • Together, they cover only 5.3% of the population (FY24).

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3. Include Informal Workers

• 85% of workers are in the informal sector and create over half of GDP.

• The gig economy is growing.

• By 2050, 1 in 3 people will be old (dependency ratio = 30%).

• If not fixed, this can hurt India’s goal to become a developed country by 2047.

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4. Main Problems

• Fragmented system: Many unconnected pension schemes.

• Low awareness: Most people don’t understand or know about pensions.

• Lack of scale: Not reaching everyone.

• Sustainability issues: Funds may not last long enough.

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5. What Other Countries Do

• Japan: Everyone contributes to a national pension.

• New Zealand: Gives a public pension to all 65+ residents.

• Australia: Teaches pension saving in schools.

• UK: Has an automatic pension system (opt-out).

• Nigeria: Uses digital tools to grow pension coverage.

• Netherlands: Sends yearly pension updates.

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6. How to Increase Awareness

• Teach financial literacy in schools and colleges.

• Easy-to-use digital platforms for pension sign-up.

• Send people yearly pension info.

• Make pension products more available and simple.

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7. Make Funds Strong and Safe

• India’s pension score is low: 44% (Mercer 2024 report).

• Needs private pension support like:

  • China, Netherlands, Australia, and the U.S. use private money or debt funds to keep pensions strong.

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8. Suggested 3-Level Pension System

1. Basic Pension (Tier 1)

   • Mandatory for all

   • Same fixed pension for everyone

2. Workplace Pension (Tier 2)

   • Mandatory or opt-out

   • Employer-managed, with automatic enrolment

3. Voluntary Savings (Tier 3)

   • Extra savings

   • Tax benefits, flexible plans, market returns

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9. Extra Steps Needed

• Teach young people about pensions.

• Make pension sign-up easier online.

• Show everyone their pension status every year.

• Strict rules to keep pension money safe and growing.

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10. Conclusion

• India needs a simple, fair pension system for all workers.

• Must protect informal sector too.

• Act now to avoid old-age poverty and support future retirees.

  By: Shivam Saxena