Answer

India’s pension system remains fragmented and inadequate, largely excluding informal workers. While schemes like NPS and Atal Pension Yojana (APY) exist, only about 5.3 percent of the population is covered. With 85 percent of the workforce informal, long-term retirement security remains elusive.

Why the Pension System Remains Inadequate & Fragmented

• Low Overall Coverage: Formal pension schemes cover only 12–13 percent of the workforce,leaving most without old-age income.
• Limited Informal Sector Reach: While informal workers form around 85 percent of employment, only around 14 percent participate in schemes.
  Eg. APY and PM-SYM cover only 51.2 million, just 14 percent of informal workers.
• Scheme Design Flaws: Fixed monthly contributions do not suit irregular incomes prevalent in informal work.
  Eg. PM-SYM and APY have drawbacks: APY shows low uptakes and PM-SYM witnessed high dropouts.
• Low Pension Benefits: Schemes offer modest pensions that fail to counter inflation and rising living costs.
  Eg. APY pensions range from ₹1,000–5,000, while PM-SYM offers ₹3,000 monthly, inadequate for sustaining elderly needs.
• Lack of Retirement Awareness: Low financial literacy and reliance on family support hamper pension adoption.
  Eg. OMI Foundation highlights potential old-age poverty as only around 2 percent of informal workers use NPS.
• Administrative Inefficiencies: Pension disbursal systems are overloaded, delayed, and fragmented across states.
  Eg. Only some disburse NSAP pensions monthly, while others delay them quarterly or half yearly.
• Insufficient Incentives: Low returns and absence of tax benefits reduce attractiveness for low-income workers.

Framework for Inclusive Long-Term Retirement Security

• Flexible, Income-Linked Contributions: Financial contributions should adjust to fluctuating informal incomes.
  Eg. Japan’s mandatory flat-rate contributory scheme includes the self-employed and farmers, ensuring broad coverage.
• Universal Social Pension: Introduce non-contributory pensions for those unable to save enough.
  Eg. New Zealand’s universal flat-rate pension supports all residents aged 65+ with a 10-year residency condition.
• Hybrid Model: Combine voluntary contributory schemes with guaranteed basic pensions.
  Eg. Social transfers plus voluntary APY/NPS-type schemes can ensure broader old-age protection.
• Digital & Administrative Reforms: Streamline disbursal through integrated digital platforms for better access and transparency.
  Eg. PFRDA and banks can unify pension portals to eliminate delays and dependency on agents.
• Financial Literacy Campaigns: Run national drives on retirement savings importance and digital access to pensions.
  Eg. A nationwide initiative like ‘Mutual Funds Sahi Hai’ can promote pensions through radio, TV, and digital media.
• State–Centre Integration: Unify pension policies and payment cycles across states through formal coordination.
  Eg. MoUs between states and Centre can ensure monthly disbursals like in Japan’s coordinated pension administration.
• Opt-Out and Default Enrolment Models: Encourage enrolment by default while preserving individual choice.
  Eg. The UK’s opt-out pension scheme for its employees, promotes participation by default.

For lasting pension reform, India must build a two-tiered system with basic universal pensions and flexible contributory schemes. Adopting global best practices, improving digital delivery, and fostering financial literacy can ensure that even informal workers enjoy secure, dignified, and financially independent retirements.

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