The Evolution of Pension Reforms in India

Context

1. India is witnessing rapid ageing. Today, 153 million Indians are above 60 years, and this number is expected to increase to 347 million by 2050.
2. However, more than 88% of senior citizens continue to work in the informal economy without pensions or reliable social security, instead of retiring.
3. This has created a major challenge for India’s pension system and financial inclusion framework.

What is a Pension System?

1. A pension system provides regular income after retirement, ensuring financial security in old age.
2. In India, pension coverage has historically been limited because most workers are in the informal sector, lacking formal retirement benefits.

What are Pension Reforms in India?

1. Pension reforms refer to changes in government policies and schemes aimed at expanding pension coverage, especially to unorganised and vulnerable groups.
2. India has moved from welfare-based support to a contributory and inclusion-based model.

How Pension Schemes Have Evolved Over Time?

1. Early Welfare-Based Social Assistance
   1. Indira Gandhi National Old Age Pension Scheme (IGNOAPS), 1995
      1. Targeted persons over 65 years living below the poverty line
      2. Direct monthly support from government

• Aim: Provide basic income security to vulnerable elderly

1. Old Pension Scheme (OPS)
   1. For government employees in the formal sector
   2. Provided guaranteed lifelong pension
2. Shift Toward Contributory Pension Models: Research showed that contributory schemes encourage better saving habits. Hence, reforms moved toward participation-based models:
   1. New Pension Scheme (NPS), 2004
      1. Replaced OPS for government employees
      2. Contributions from both employee and government

• Later extended to corporate sector employees

2. NPS 2.0 introduced flexible options and up to 100% equity investment for higher returns

1. Atal Pension Yojana (APY), 2015-16
   1. For workers aged 18-40 in the informal sector
   2. Periodic contributions, flexible payment options (monthly/ quarterly/ half-yearly)

• Government guarantees minimum pension amount

1. Designed to include agriculture and informal income earners

3. Labour Code Reforms
   1. Introduced a uniform definition of wages
   2. Ensured basic pay = at least 50% of earnings
   3. Result: Higher calculation base for pension, gratuity, and social security benefits
4. Digital Inclusion Initiatives
   1. e-SHRAM portal
      1. A national database for informal workers to register and access eligible schemes
      2. Supports integration of informal workforce with protection systems

Why Do These Reforms Matter?

1. Pension access is crucial because most elderly remain in informal employment even after 60.
2. India is transitioning from: welfare support → participatory and inclusive financial protection
3. Enables workers to build savings and secure retirement income.

Implications of Pension Reforms

1. Greater financial inclusion across informal and formal sector barriers
2. Improved retirement security for vulnerable elderly
3. Encourages saving behaviour among low-income groups
4. Supports ageing with dignity
5. Helps build a data-driven welfare delivery system

Challenges and Way Forward

Conclusion

India’s pension reforms show a clear shift from welfare-based support to a participatory, inclusion-driven model. While significant progress has been made through IGNOAPS, NPS, APY, labour codes and e-SHRAM, challenges of awareness, digital access, and last-mile delivery remain. The future of pension policy must ensure universal access, simplification, and dignity for the elderly.