Source: The post “The evolution of pension reforms in India” has been created, based on “The evolution of pension reforms in India” published in “The Hindu” on 8 December 2025. The evolution of pension reforms in India.
UPSC Syllabus: GS Paper-3- Economy
Context: India is undergoing a rapid demographic shift, with the elderly population of 153 million in 2025 expected to reach 347 million by 2050, creating a major pension and social security challenge. Pension reforms in India have gradually transitioned from welfare-based support to contributory and inclusion-focused frameworks, especially targeting informal sector workers.
Evolution of Pension Reforms in India
A. Welfare-Based Social Assistance Phase
- The Indira Gandhi National Old Age Pension Scheme (IGNOAPS), introduced in 1995, was designed to provide a direct, regular income to persons above 65 living below the poverty line.
- This scheme expanded over time, becoming the first nationwide financial support mechanism for elderly individuals in the unorganised sector.
- The Old Pension Scheme (OPS) covered government employees by offering defined benefits, although it later became fiscally unsustainable.
B. Contributory and Financial Inclusion Phase
- The New Pension Scheme (NPS), launched in 2004, replaced OPS and introduced a market-linked, contributory model for formal sector employees.
- The corporate NPS model extended pension coverage to private sector workers by allowing them to open voluntary pension accounts.
- The Atal Pension Yojana (APY), introduced in 2015-16, offered informal sector workers a contributory pension plan with flexible payment intervals to account for seasonal income fluctuations.
- APY ensured a guaranteed minimum pension if investment returns fell short, encouraging formal savings behaviour among low-income households.
C. Recent Pension Innovations
- The NPS 2.0 reform allowed subscribers to invest up to 100% in equity and introduced a flexible Multi-Scheme Framework, making it attractive for younger and higher-risk investors.
- The new Labour Codes introduced a uniform definition of wages, ensuring that basic pay constitutes at least 50% of total salary, which increases pension and gratuity contributions and enhances long-term financial security for workers.
Inclusion Measures for Informal Sector Workers
- The government launched the e-SHRAM portal to create a national database of informal sector workers and provide them with information about pension and social security schemes.
- The Longitudinal Ageing Survey of India shows that 42% of people over 55 remain unaware of NPS eligibility criteria, which highlights the need for greater awareness.
- The digital divide continues to pose challenges because 63% of elderly citizens do not know how to use the Internet, limiting their ability to register for schemes on their own.
- Registration requirements such as Aadhaar-mobile linkage and bank accounts also create risks of exclusion for vulnerable groups.
Analytical Perspective
- Pension reforms have progressed in a hierarchical manner, with each stage addressing gaps identified in earlier approaches to elderly welfare.
- The early focus on welfare through IGNOAPS and OPS was followed by the introduction of savings-driven schemes such as NPS and APY, which aimed to strengthen financial inclusion.
- Recent reforms, including e-SHRAM and NPS 2.0, show a shift towards a data-driven, participatory system that integrates informal workers into formal financial structures.
Key Challenges in India’s Pension Framework
- India continues to face low awareness about pension schemes among informal-sector and rural populations, which prevents eligible elderly individuals from enrolling.
- The predominance of informal employment, where workers have irregular incomes, makes it difficult for them to commit to consistent contributions under schemes like APY.
- Digital barriers and weak financial literacy hinder effective utilisation of technology-driven platforms such as e-SHRAM and NPS online services.
- Administrative challenges such as errors in Aadhaar linkage, banking access, and verification processes create delays and exclusion from benefits.
- Fragmented implementation across States leads to uneven coverage and inconsistent pension disbursements.
- The guaranteed pension amounts under some schemes remain low relative to rising living costs, which reduces the adequacy of social protection.
Way Forward
- The government should strengthen awareness campaigns through community workers, local bodies, and financial literacy programmes to ensure that all eligible groups understand pension schemes.
- Pension contributions for informal-sector workers can be made more flexible by allowing micro-contributions and government co-contribution for the poorest households.
- Digital infrastructure must be enhanced by providing assisted digital services at CSCs, panchayat offices, and post offices to overcome digital illiteracy barriers.
- The e-SHRAM platform should be integrated with NPS and APY to create seamless enrolment, automatic eligibility verification, and timely benefit delivery.
- Pension adequacy needs improvement through periodic revisions of benefit amounts based on inflation and elderly care costs.
- Stronger monitoring mechanisms and grievance redressal systems should be instituted to prevent exclusion errors and ensure transparent disbursement.
Conclusion
The evolution of India’s pension system marks a decisive movement from state-supported welfare schemes towards contributory and inclusion-based financial security models. Despite challenges such as limited awareness and digital exclusion, ongoing reforms offer a strong foundation for improving the dignity and economic security of India’s rapidly growing elderly population. Ensuring widespread awareness, digital support, and effective last-mile delivery will be essential for achieving a universal and robust pension system.
Question: “The evolution of pension reforms in India reflects a shift from welfare-based social assistance towards a participatory financial inclusion framework.” Discuss.
