Pension sector needs boost to improve social security coverage: Eco survey

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The Economic Survey 2024-25 on Friday made a case for scalability of pension coverage to bring more people under the social security net.

Despite significant advancements in the pension sector, just 5.3 per cent of the total population is covered by the National Pension System (NPS) and Atal Pension Yojana (APY) combined.

"This highlights another critical aspect of the Indian pension system: scalability. Low costs are essential to enhance coverage meaningfully. Achieving this will require highly competitive, low-cost fund management and minimal transaction costs, which is particularly vital for small-ticket transactions," it said.

In principle, it said, taking into consideration both scalability and sustainability, India's pension system design seems robust and stable, the survey tabled in Parliament said.

NPS is one of the lowest-cost pension schemes globally and its framework is based on a defined contribution model, which ensures that future payouts are determined by market fluctuations, thereby reducing the fiscal burden on the government.

Additionally, APY aims to address the retirement needs of the unorganised and informal sectors - first time in India's pension history.

While progress under APY has been notable, its scalability in practice remains an area for further development, it said, adding, the key issue moving forward is how to make the pension system more accessible to the informal sector.

Observing that the young people in India may not feel an immediate need to secure an optimal pension plan, the survey said, the old-age dependency ratio is about 15.7 per cent, which is significantly lower than in many emerging economies.

However, this should not lead to complacency and the best time to repair a roof is when the sun is shining, not when it is raining, it said.