India’s rap­idly age­ing pop­u­la­tion is emer­ging as a pivotal pen­sion chal­lenge. Today, over 153 mil­lion Indi­ans are aged over 60. This is pro­jec­ted to double to 347 mil­lion by 2050. While a small sec­tion of older Indi­ans has benefited from the rise of formal sec­tor retire­ment, more than 88% of today’s senior cit­izens con­tinue to work, in the sprawl­ing informal eco­nomy, without access to pen­sions or reli­able social secur­ity rather than retir­ing (Chart 1). We revisit the evol­u­tion of pen­sion schemes for fin­an­cial inclus­iv­ity of the Indian informal sec­tor.

The Indira Gandhi National Old Age Pen­sion Scheme (IGNOAPS) is a social assist­ance pro­gramme launched in 1995 for per­sons aged over 65, liv­ing below the poverty line (BPL). Sub­sequent changes expan­ded scheme eli­gib­il­ity and strengthened fin­an­cial sup­port, lead­ing to a sig­ni­fic­ant rise in enrol­ment. It is a first among national­level efforts taken to provide a dir­ect, reg­u­lar source of income to the older pop­u­la­tion in the unor­gan­ised and eco­nom­ic­ally vul­ner­able sec­tion of soci­ety. Sim­il­arly, formal sec­tor gov­ern­ment employ­ees were covered under the gov­ern­ment­sponsored Old Pen­sion Scheme (OPS).

Research finds that unlike social bene­fit schemes, con­trib­ut­ory pen­sion schemes in devel­op­ing coun­tries encour­age house­hold formal sav­ings beha­viour. Announced in Budget 2015­16, the Atal Pen­sion Yojana (APY) is a con­trib­ut­ory pen­sion scheme for indi­vidu­als aged 18­40, where peri­odic con­tri­bu­tions are made to a pen­sion account. At retire­ment, the accu­mu­lated amount, includ­ing returns, is dis­bursed, with the gov­ern­ment guar­an­tee­ing a min­imum pen­sion if returns fall short.

Tak­ing into con­sid­er­a­tion the sea­sonal nature of informal sec­tor income, espe­cially agri­cul­ture, the APY allows for not just monthly but also quarterly and half­yearly instal­ments.

For the formal sec­tor, OPS was replaced by the con­trib­ut­ory­model New Pen­sion Scheme (NPS) in 2004. The NPS also has a cor­por­ate sec­tor model which extends to all cor­por­ate sec­tor employ­ees with a sav­ings account. Recently, the NPS 2.0 was launched allow­ing total allot­ment to 100% equity and a flex­ible mul­tiple scheme frame­work (MSF) — an attract­ive change for younger high­risk, high­reward­type investors. The APY and NPS mod­els form a com­pre­hens­ive long­term fin­an­cial secur­ity frame­work that ensures inclu­sion in the formal fin­an­cial sys­tem, des­pite the sec­toral divide.

The Labour Codes intro­duced a uni­form defin­i­tion of ‘wages’, requir­ing that basic pay make up at least 50% of total earn­ings. This closes a long­stand­ing loop­hole that allowed employ­ers to shrink basic pay by inflat­ing allow­ances. With pen­sion, gra­tu­ity, and social secur­ity bene­fits now cal­cu­lated on a higher base, work­ers stand to gain stronger fin­an­cial pro­tec­tion.

The pro­gres­sion of pen­sion schemes in India reflects a hier­arch­ical pat­tern in which each stage builds on the needs iden­ti­fied before it. Through an equity and social­wel­fare lens, the gov­ern­ment first intro­duced IGNOAPS and OPS to meet the basic needs of older adults. Hav­ing secured social pro­tec­tion, the focus shif­ted to more soph­ist­ic­ated goals such as fin­an­cial inclu­sion and sav­ings and invest­ment beha­viour through the NPS and the NPS 2.0. To bridge sec­toral divide, sim­ilar beha­vi­oural nudges were exten­ded to informal­sec­tor work­ers via the APY.

Many of these schemes are expli­citly tar­geted at BPL indi­vidu­als, and are there­fore designed to extend cov­er­age to informal­sec­tor work­ers who lack access to formal retire­ment pro­vi­sions. However, there still exists a gap in aware­ness of schemes amongst the eli­gible pop­u­la­tion. Our find­ings from the Lon­git­ud­inal Age­ing Sur­vey of India (LASI) show that as of 2017­18, 42% of indi­vidu­als aged over 55 were still unaware of NPS and its eli­gib­il­ity cri­teria and require­ments (Chart 2).

Many of these schemes are expli­citly tar­geted at BPL indi­vidu­als, and are there­fore designed to extend cov­er­age to informal­sec­tor work­ers who lack access to formal retire­ment pro­vi­sions. However, there still exists a gap in aware­ness of schemes amongst the eli­gible pop­u­la­tion. Our find­ings from the Lon­git­ud­inal Age­ing Sur­vey of India (LASI) show that as of 2017­18, 42% of indi­vidu­als aged over 55 were still unaware of NPS and its eli­gib­il­ity cri­teria and require­ments (Chart 2).

To tackle lim­ited aware­ness and frag­men­ted access to wel­fare pro­grams, the e­SHRAM portal was launched as a national data­base for informal sec­tor work­ers. Through this, work­ers can register and obtain inform­a­tion about social secur­ity schemes for which they are eli­gible. Our ana­lysis of the LASI data shows that over age 55, about 75.6% of women and 68% of men work in this sec­tor.