Bhubaneswar: Even as the Atal Pension Yojana (APY) has grown by size universally since its launch, the Economic Survey 2024-25 tabled in Parliament Friday measures low penetration of pension in the Indian society.
As per the Economic Survey 2024-25, India's pension sector has grown considerably since the introduction of the National Pension System (NPS) and Atal Pension Yojana (APY).
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Only 5.3 per cent of the total population is covered by the NPS and APY combined.
Therefore, the Eco-Survey underlines the challenge of scalability before the Indian Pension system, especailly in the informal sector.
The survey reveals that as of September 2024, the total number of subscribers reached 783.4 lakh, showing a YoY growth of 16 per cent from 675.2 lakh in September 2023.
RISE IN ATAL PENSION SUBSCRIBERS
According to the Eco – Survey, the number of APY subscribers, which includes its earlier version, NPS Lite, rose from 538.2 lakh in March 2023 to 629.1 lakh in September 2024.
The Survey noted that APY subscribers comprise approximately 80.3 per cent of the overall pension subscriber base.
The disaggregated data from the Pension Fund Regulatory and Development Authority of India (PFRDA) measures how the Atal Pension Yojana has truend a big hit since its launch in may 2015.
APY – A BIG HIT AMOMG WOMEN!
As per PFRDA, the APY subscriber demography has witnessed significant improvements in terms of gender.
- The share of female subscribers increased from 37.9 per cent in FY16 to 52 per cent in FY24.
- The age distribution has shifted to favour a younger cohort, specifically those aged 18-25, whose share rose from 29.2 per cent in FY16 to 45.5 per cent in FY24.
APY BLIPS
The Eco-Survey, however, noted that the PFRDA data shows the following blips.
- 93.7 per cent of APY accounts correspond to a pension amount of Rs1,000 per month
- Only 3.7 per cent are for Rs 5,000.
- This shows the overwhelming subscribers have shown preference to low pension amount.
ECO – SURVEY ON WHY LOW AMOUNT?
The Survey reasoned the overwhelming preference for a low pension amount among APY subscribers to following factors:
- Under the scheme, the target population primarily consists of low-income households, where daily consumption needs take precedence over savings.
APY, NPS UPS PENSION PENETRATION
The Economic Survey noted that following the launch of two schemes – APY and National Pension System (NPS) – have a salient impact on the penetration of pension among Indian population.
As per the Survey, the overall pension coverage for these two schemes has increased from 0.95 per cent of the total population in FY16 to 5.3 per cent in FY24.
INDIAN PENSION ASSETS SHARE LOW IN GDP
The Survey has noted that following that post the launch of APY and NPS, the Assets under Management (AuM) for these schemes as a proportion of GDP have risen from 0.86 per cent in FY16 to 4 per cent in FY24.
ECO-SURVEY SEES 'UPS' BOOST TO PENSION POTENTIAL
The Economic Survey 2024-25 expects a boost to the growth in pension subscribers post the launch of UPS (Unified Pension System) on 24 August 2024.
The Survey declares: India's pension system has considerable potential for further expansion
It needs mentioning that UPS is for Government employees, and will be effective from FY26.
This scheme offers a family pension, a guaranteed pension amount, and a minimum pension for all the people working in government jobs.
It guarantees 50 per cent of the average basic pay of the past 12 months preceding the date of retirement as the guaranteed pension for the employee, provided the employee has served the government for at least 25 years.
The minimum pension under the scheme is ₹ 10,000 per month for employees who have at least 10 years in the service upon superannuation.
In case of death of the pensioner, 60 per cent of the pension amount (which he or she received right before the demise), will be offered to the family.
SURVEY SEES PENSION GROWTH
Flagging the low penetration of pension in the country, the Survey noted that pension assets, including major schemes like the Employees’ Provident Fund Organisation (EPFO), account for 17 per cent of the GDP. Of which:
- NPS contributions an additional 4.5 per cent.
The Survey pointed out that, on the contrary, the average pension assets in OECD countries exceed 80 per cent of their GDP.
However, the Survey expressed optimism that India's capacity to financially empower its citizens is anticipated to grow as the economy progresses.
The extension of NPS to children through the NPS Vatsalya is expected to contribute to this empowerment, the Survey noted.
WILL INDIA FACE ITALY – GREECE – UK SYNDROME?
Deliberation on the pension landscape, the Survey points out that by design the benefits of a robust pension system are realised long into the future.
It said the system's liabilities (pension payments) become due far later, while there is always a risk that the assets (contributions from a younger workforce) may change in the meantime.
This will then result into a potential asset-liability mismatch and can result in explosive government debt once the future payouts become due.
Talking about the Italy-Greece syndrome, the Survey mentioned that they suffered pension crises as their populations aged.
The UK is predicted to hit a pensions crisis in the next two decades, it stated.
HOW INDIA WILL BE INSULATED?
Talking about the efficient pension system for India to avoid the European syndrome, considering India’s unique demographic and labour market characteristics, the Survey says the following:
- Country’s pension system must embrace principles of sustainability and scalability.
- Emphasising sustainability is crucial to ensure that as India moves beyond its favourable demographic window,
- the burden of an ageing population does not disproportionately affect the younger generation.
- For a pension scheme to be sustainable, the outflows must be adequately linked to the inflows.
- In this context, Pay-As-You-Go (PAYGO) schemes begin to fail when demographic profiles change.
- Furthermore, the nature of inflation indexation is important, especially in defined benefit schemes.
- Even small differences in percentage points for indexation can lead to significant variations in the annuities paid out, the report highlighted.
- The Survey noted that, in principle, taking into consideration both scalability and sustainability, India’s pension system design seems robust and stable.
The 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.
