Towards Comprehensive Pension Coverage in India

In view of inadequate coverage by formal pension schemes, the lack of fiscal space to launch a pay-as-you-go nationwide social security scheme and increasing fiscal stress on account of the traditional DB pension system for Government employees, the Government of India decided to establish a new DC pension system based on portable individual pension accounts and administered by an unbundled institutional architecture in the form of National Pension System (NPS).

Now, with employees of both Central and State Governments, autonomous bodies, and also for non-salaried unorganised sector workers in mind, the NPS was designed to be self-sustainable, scalable, affordable, easily accessible, efficient, competitive, employment portable and of sound regulation.

The pension reforms have created a very efficient, country-level administration and investment system that delivers best in class costs and returns. This ‘unbundled’ architecture can be used with multiple entry points and product types for different employee groups. But it is only with the advent of India’s national ID (Aadhaar) platform and modern developments in IT and payments systems, that the full potential of the Indian pension system can now finally be seen.

The Indian experience shows how with the right combination of ID, IT and sensible design for administration and investment governance and execution, developing (and developed) countries will be able to achieve radically improved chances for expanding coverage to the hard to reach groups and delivering to these groups the kinds of costs and returns typically only available to formal sector salaried individuals in the country.

To find out more, don’t forget to check out our new book, Saving the Next Billion from Old Age Poverty to be released October 12, 2017.

Photo credit: vishwaant avk/Flickr CC

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