Why India's pension sector reforms need stronger demand from workers

While pension reforms and new retirement products are expanding choices, experts say changing younger workers' perception of retirement savings is crucial to boosting participation

Pension is almost a pejorative for this young generation - that was the general sentiment, even lament, among fund managers at the Joint Conference on Pensions (JCP) that was organised by the Pension Fund Regulatory and Development Authority of India in the national capital last week.

 

“We need to break down this mindset, but it will not be easy,” said Radhika Gupta, managing director and chief executive officer of Edelweiss Mutual Fund.

 

Vishwajeet Goel, head of Pensionbazaar at policybazaar.com, echoed her statement: “Unless this mindset changes, the demand for pension products will not pick up”.

 

Their opinions are broadly true. India's overall retirement system has ₹15.9It5 trillion in assets, but that is only a drop - less than five per cent - in the country's overall savings ocean.

 

It is against this backdrop that both the government and fund managers are trying to find ways to boost demand for pension funds in the country. Indeed, the need for pension reforms has never been greater as the unorganised sector sees a influx of younger gig workers, alongside workers in other sectors. The PFRDA has created the light touch Atal Pension Yojana (APY) for the unorganised sector, with gross enrolments under the scheme crossing 8.11 crore as of August 21, 2025. Of these, more than 1.17 crore new subscribers were enrolled in FY25.

 

S Ramann, chairperson of PFRDA said it has garnered ₹48,000 crore assets under management (AUM), growing at a CAGR of 9.12 per cent. “It is a robust and sustainable pension product,” he said.

 

Then there is the Employees Provident Fund scheme, aimed at the organised sector, and with a humongous ₹31.2 trillion under management.

 

Nonetheless, demand among young entrants to the workforce remains tepid.

 

K Mohan Gandhi, PFRDA's chief general manager, said sand box designs are being tried out too. One such is the NPS Swasthya Pension Scheme, currently being tested as a Proof of Concept (PoC) under the pension architecture.

 

What makes this different from a regular pension scheme is that it ties the benefits of a pension to health coverage in old age, offering a way to break the episodic nature of insurance-led medical coverage.

 

India’s health insurance sector is growing at around 9 per cent annually, with total health insurance premiums volume exceeding ₹1.2 trillion by FY25, but it remains beset with complaints of rejected claims. Insurance portal data shows that while 87.5 per cent of claims made were paid out, the sector also records the highest rate of consumer grievances among all insurance products.

 

The challenge is endemic to any insurance-based health coverage for a large number of people. Current healthcare financing structures in India remain largely hospitalisation-centric, with most health insurance products primarily designed around acute hospitalisation, surgery, inpatient treatment, and episodic medical interventions.

 

However, medical support in old age is a recurring expense, requiring continuous support, including preventive care, home nursing, assisted daily living, physiotherapy, rehabilitation, dementia support, supervised living, palliative care and long-term wellness management. While the goal is not to switch entirely to government-funded healthcare, the Prime Minister Jan Arogya Yojana does provide healthcare coverage up to ₹5 lakh per year for secondary and tertiary care services and hospitalisation to enrolled socio-economically deprived families.

 

Khushwant Pahwa, consulting actuary at KPAC LLP, says there are many more such models that could be tried. One of these, he says, is to encourage government employees to try more equity-linked pension products.

 

This week, the Government of India extended two additional investment choices under the National Pension System to employees of Central Autonomous Bodies: the LC-75-High (previously Aggressive Life Cycle Fund), which is aimed at long-term growth and allows up to 75 per cent exposure to equity. The Aggressive Life Cycle Fund (previously Balanced Life Cycle Fund) caps equity exposure at 50 per cent and features a gradual reduction in equity allocation starting at the age of 45 to balance out growth and stability.

 

But the demand pull is important. To make that happen, the regulator has recently appointed Motilal Oswal AMC, Bank of Baroda, Bajaj Life Insurance as sponsors to float their respective pension funds.