India has an enviable workforce, but not all get the golden handshake, or in other words, a decent pension after retirement.
While government employees and some in the private sector are secured under one or the other pension programmes, those working in the informal sector like construction and gig workers, who account for over 80% of India's total workforce, remain outside formal pension coverage.
Which is why it isn't baffling to know that India's pension system is ranked among the weakest globally at 45 out of 77 countries, as per the Mercer-CFA Institute Global Pension Index 2025.
In fact, the government's own Economic Survey 2025 noted that India needs an inclusive pension system as pension assets account for just 17% of GDP compared to up to 80% in advanced economies. Moreover, just 12% of India's workforce is covered by formal pension schemes, while statutory body Employees’ Provident Fund Organisation (EPFO) pegs the absolute number of active pension subscribers at over six crore.
A secure retirement is a basic necessity, but in India, pensions have historically been limited to government and private sector workers. It's not that there aren't enough pension plans for the unorganized sector, but because it's voluntary adoption, participation remains dismal. Even among those who are covered under an alphabet soup of schemes, the coverage is disproportionate. And as if the inadequacy isn't enough, an ageing population further compounds the challenge of social security.
According to UN data, India’s elderly population aged 60 and above is projected to reach 227 million by 2036, making up 15% of the total population. By 2050, it's expected to rise to 347 million, or 20% of the country’s population. Given the anticipated increase in both the workforce and the elderly, it's time the government actively considers a Universal Pension Scheme (UPS) to extend social security for all individuals including salaried workers, self-employed and those working in the unorganised sector.
In fact, the government seems to have wheeled out the idea early this year, with the Ministry of Labour and Employment reportedly exploring a UPS by potentially merging all existing schemes to offer a structured pension coverage.
Currently, India has multiple pension schemes such as the National Pension System (NPS), Unified Pension Scheme (UPS), the Employees’ Provident Fund Organisation (EPFO), and government schemes like the Atal Pension Yojana and PM-SYM covering informal workers. But they all differ in structure and benefits, leading to inequities within the pension system.
For instance, the Atal Pension Yojana, regulated by the Pension Fund Regulatory and Development Authority (PFRDA), covers unorganised sector workers who receive a guaranteed pension of Rs 1,000 to Rs 5,000 per month depending on their contributions. Likewise, the Pradhan Mantri Shram Yogi Maandhan (PM-SYM) and the National Pension Scheme for Traders and Self-Employed provide a monthly pension of Rs 3,000 with matching contributions of Rs 55 to Rs 200 per month by the government and individual subscribers.
For the organised sector, the EPFO's Employees’ Pension Scheme mandates employers to contribute 8.33% of an employee’s salary to the pension fund, which is later disbursed as pension. Then there's the Pradhan Mantri Kisan Mandhan Yojana (PM-KMY) designed specifically for small and marginal farmers who get a monthly pension of Rs 3,000. Lastly, for government employees, there are three variations -- Unified Pension Scheme (UPS), Old Pension Scheme (OPS) and National Pension Scheme (NPS).
The UPS was introduced in April and combines both the NPS and OPS to offer a guaranteed pension of 50% of the average basic salary drawn during the last 12 months before retirement. Those with 10 years service too are entitled to a minimum pension of Rs 10,000 per month upon superannuation. In case of the pensioner’s death, the family will receive 60% of the last pension drawn. Employees contribute 10% of their basic salary and DA, while the government contributes 8.5% -- a higher share than the NPS’s 14%.
Prior to the UPS, there was the OPS which offered a monthly pension equal to 50% of the last drawn salary, subject to increase in line with the hike in the Dearness Allowance (DA) rates. Over and above this, employees also received gratuity payment of not more than Rs 20 lakh. The distinctive feature of the OPS was that employees contributed nothing to the pension pot and because of its popularity, several states including Himachal Pradesh, Rajasthan, Chhattisgarh and Punjab switched back to the OPS from the NPS.
In 2004, the NPS replaced the OPS for all government employees and was extended to private sector, self-employed individuals, and non-resident Indians in 2009. Unlike the OPS, the NPS is a market-linked pension scheme, where an individual's retirement corpus depends on investment performance. Employees must make mandatory contributions throughout the working period, and upon retirement at 60, 40% of the accumulated corpus can be used for an annuity and 60% can be withdrawn without incurring taxes. However, unlike the UPS, there's no assured pension, as payouts depend on investment performance.
Despite the growth in NPS and APY subscribers, only about 12% of the workforce and 5.3% of the population are covered by these schemes, according to the Economic Survey 2025. The proposed Universal Pension Scheme seeks to broaden coverage and establish an inclusive and sustainable pension system. But given India's rising public debt upwards 85% of GDP, government-funded pension simply seems unaffordable placing a significant burden on the government's finances.
That said, India needs a well-designed universal pension system that covers all, or nearly all, of the population. So policy watchers suggest adhering to the World Bank's conceptual 5-pillar pension framework to improve both coverage and quantum of pension outgo. It starts with the zero pillar to include a non-contributory basic pension from public finances to deal explicitly with the poverty-alleviation objective. This must be followed by the first pillar that's nothing but a mandated public pension plan with contributions linked to earnings. The second pillar includes mandated defined contribution with individual accounts in occupational or personal pension plans with financial assets, while the third pillar entails voluntary and fully-funded occupational or personal pension plans with financial assets. The last pillar is a voluntary system outside the pension system with access to a range of financial and non-financial assets and informal support like family, healthcare and housing.
Developed nations, including the US, Canada, Russia, China and most European countries, have well-established social security systems that provide pensions, healthcare, and unemployment benefits. In contrast, India’s current social security framework depends on the provident fund system, along with targeted old-age pension schemes and health insurance only for the below poverty line households.
Even smaller countries are undertaking reforms to increase their social security net. For instance, Nepal, Oman, the Philippines and Vietnam enhanced social pensions programmes, while Iraq and the United Arab Emirates focused on facilitating access to contributory pensions for individuals who do not meet minimum qualifying periods. Likewise, Saudi Arabia increased the lump-sum benefit amount for these individuals. Reforms in Kuwait, Malaysia and Qatar have focused on adequacy, either by implementing changes to pension benefit calculations or by introducing or increasing minimum benefit amounts.
While expanding the system to include informal sector workers is a good step to start, reforms should also be undertaken to ensure the long-term financial health of the pension system.
