Pension reforms must revamp key schemes to widen coverage: Report

SBI Research report urges mandatory contributions by large private firms, tax parity and the integration of the Unified Pension Scheme to secure a rapidly ageing workforce

India must reform its pension systems to widen coverage and strengthen long-term retirement security, SBI Research has said in a report ahead of the Budget on Monday.

 

Pension reform should be a policy priority as India’s workforce ages and informal employment remains dominant, said the research arm of the country’s largest bank.

 

SBI Research flagged the muted response to the Unified Pension Scheme (UPS), which came into effect on April 1, 2025 for central government employees. Of around 2.4 million eligible employees, only about 120,000 have opted for the scheme. To improve coverage, the report recommended expanding UPS to state government and public sector undertaking employees, which could significantly widen the formal pension net.

 

 

UPS offers a guaranteed, inflation-linked pension backed by the government, providing predictability that market-linked products cannot. For employees completing 25 years of service, the pension is set at 50 per cent of the average salary drawn in the final year, along with dearness relief.

 

NPS Vatsalya needs stronger tax push

The report highlighted slow adoption of the NPS Vatsalya scheme, which was launched in September 2024 to encourage early pension savings for children. Subscriber numbers stood at about 130,000 as of August 2025. SBI Research suggested that higher tax incentives could make the scheme more attractive, including an increase in the additional deduction limit under Section 80CCD(1B).

 

According to the report, stronger tax benefits could prompt families to begin pension planning earlier, helping build larger retirement buffers over time.

 

EPFO revamp and system-level reforms

Another key recommendation relates to the Employees’ Provident Fund Organisation. SBI Research called for revamping EPFO operations in line with the National Pension System (NPS), especially in technology, governance and transparency. Aligning the two systems could improve efficiency, service delivery and member confidence.

 

The report also stressed the need for interoperability between EPFO and NPS, allowing seamless portability of retirement savings when employees change jobs or sectors.

 

Push for uniform tax treatment

 

SBI Research underscored the need for uniform tax treatment across retirement and insurance products, including annuities and unit-linked insurance plans. Differences in taxation, it said, often distort retirement planning, nudging savers towards tax-favoured products rather than those best suited to their needs.

 

To deepen pension coverage in the private sector, the report proposed mandatory NPS contributions for large employers, such as firms with more than 100 or 200 employees.

 

Budget 2026-27 offers an opportunity to build a more inclusive and resilient pension system, SBI Research said. With a large share of India’s workforce still outside formal retirement arrangements, targeted policy action could play a decisive role in improving long-term financial security.