The Economic Survey 2024-25, tabled in Parliament, highlighted a crucial challenge facing India’s pension sector: despite significant advancements, only 5.3% of the total population is covered by the National Pension System (NPS) and the Atal Pension Yojana (APY) combined. The Survey emphasizes the need to scale up pension coverage and make social security accessible to a larger portion of the population.
The Need for Scalability in India’s Pension System
The Economic Survey 2025 made a strong case for increasing the reach of India’s pension schemes, pointing out that low coverage remains a major hurdle. While the NPS and APY have contributed significantly to India’s social security landscape, scaling up these schemes to reach a broader population is essential for enhancing financial security for all.
Key Takeaways:
- Current Coverage: Only 5.3% of India’s population is covered by NPS and APY.
- Challenge: The focus needs to shift toward making these schemes scalable and accessible, particularly for the informal and unorganised sectors.
Cost Efficiency is Key to Expanding Pension Coverage
One of the main barriers to expanding the pension system is the cost of management. The Survey highlights that in order to increase coverage effectively, low-cost pension management is crucial. This includes minimizing transaction costs, especially for small-ticket transactions that are common in low-income or informal sector schemes.
In this context, the Survey emphasized the importance of ensuring competitive, low-cost fund management to make pensions accessible to a wider audience, particularly those in the unorganised sector. India’s NPS, already one of the lowest-cost pension schemes globally, is designed to be scalable and sustainable by focusing on defined contribution models where payouts are market-linked, reducing the fiscal burden on the government.
Atal Pension Yojana (APY): Addressing the Informal Sector
The Atal Pension Yojana (APY) has been a significant step in addressing the retirement needs of India’s unorganised and informal sectors. For the first time in India’s pension history, a scheme has been tailored to cater to this large segment of the workforce.
However, the scalability of APY remains a challenge. The Survey pointed out that while the scheme has seen good progress, making it more accessible and effective for the informal sector remains a key area for development.
Youthful Population and Long-Term Concerns
India’s young population may not feel the immediate need to secure their financial future through pension plans. However, the Survey warned that the old-age dependency ratio—currently at 15.7%, significantly lower than many emerging economies—should not lead to complacency. India must act now to ensure the pension system is prepared for future demands.
The Survey stressed the importance of addressing the issue of pensions early, emphasizing the old saying: “The best time to repair the roof is when the sun is shining.”
Scalable and Sustainable Pension Systems
The Economic Survey 2025 underscores the need for scalability and accessibility in India’s pension system. While schemes like NPS and APY have made significant strides, they must be further developed to ensure broader coverage, especially for the informal sector. The key to achieving this is reducing the cost of fund management and making the system more inclusive for all sectors of the population, particularly as India’s working-age population continues to grow.
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