Social Protection Brief: Supporting Pension Reforms in India

Abstract

The Government of India is at the forefront of pension reform in South Asia. The drive for pension reform stemmed from ballooning unfunded pension liabilities under the defined benefit system for civil servants, which was not fiscally sustainable for both central and state governments. The current occupational pension system for civil servants and salaried employees in the private sector barely covers 14% of India’s paid workforce. Most of India’s workforce is employed in the informal sector, and are excluded from the benefits of a regulated retirement income system. In 2004, the government took the first steps toward establishing a self-sustaining and broad-based pension system for India when it moved away from unfunded defined benefit pensions for government employees in favor of a contributory system. This new system is a defined-contribution, individual- accounts-based pension program mandatory for civil servants. In 2009, the NPS was made available to all other Indian citizens, including informal sector workers, on a voluntary basis