India's Problem with Too Much Pension Options

Recently Mercer CFA Institute came up with Global Pension Index Report. It placed India 40th out of 43 countries, which of course is not a good thing. So let's look at the reason behind India's weak performance in the Social security net and more importantly the problem of too many options regarding the same in today's weekend pill.

While it might seem too early for a person in their 20s to think of their retirement, it is equally important as buying a dream house or buying that favorite car. It is because
You are dependent on your parents in your childhood which is not by choice, but if you are dependent on your children in your old age, it will be by your choice.

India prominently has a single pension plan, i.e National Pension Scheme (NPS). For the uninitiated, NPS was started only for Government employees but later was opened for all the citizens of India, with an age bracket of 18-70 years. Now this is the most famous scheme of India and was introduced to replace the Direct Benefit (DB) with Direct Contribution (DC) in 2004, but apart from this there is also

  • Atal Pension Yojana (APY), aimed at low-income groups.

  • Pradhan Mantri Vaya Vandana Yojana, Indira Gandhi National Old Age Pension Scheme (IGNOAPS) & Varishtha Pension Bima Yojana - aimed at citizens above 60 years

  • Employee Pension Scheme (EPS) - aimed at people working in the private sector

If you look closely you will notice how many schemes overlap with each other. On the other hand, the USA has just one type of pension plan - the Employee Retirement Income Security Act (ERISA), which makes it easier for citizens to understand it better.

In India, the median age is 28.4 years which is expected to be 38.1 years by 2050 which means more people are expected to spend their life in retirement in near future.

Also according to a report by PGIM India Mutual fund market research firm Nielsen, 89% of the Indian respondents believed they are not prepared for retirement and 48% said they didn’t know what kind of money they would need, which further highlights the issue of the unawareness of the need for a pension plan.

Then there is also the issue of 90% of India's workforce being employed in the unorganized sector, which doesn't have access to occupational pension schemes like the EPF and the NPS.

Thankfully the government has acknowledged this issue and has come up with the “Code on Social Security” wherein aggregators like Zomato and Ola are expected to contribute towards the pension of their delivery workers and drivers. Also with the option of central and state government contributions, hopefully, these workers will have a secure future after their retirement.

Two things are evident from the above-presented facts and information,
First - Too many options for a pension plan.
Second - Lack of awareness regarding pension plan.
Combined which results in fewer people opting for a plan, which ultimately results in more people without a social security net, which is not only bad for citizens but also for the government. What remains to see is how will the government respond to these issues?

Also, Do you have a Pension Plan? if yes, then which?

Do let us know your thoughts on the above topic in the comment section and let a healthy conversation begin.

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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.

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