Context:
• The article by Manish Sabharwal discusses the structural shortcomings in India’s pension system, especially the Employees’ Provident Fund Organisation (EPFO), and suggests reforms to ensure retirement security for India’s growing workforce.
• With rising life expectancy and informal employment, pension financing has become a major economic and social challenge.
Key Highlights / Details
Global Pension Crisis Context
• Ageing populations and shrinking workforces are pressuring pension systems worldwide (Europe, Japan, China).
• Many economies rely on debt to fund pensions, leading to long-term fiscal risks.
• India still has a young demographic, but lacks comprehensive retirement planning frameworks.
EPFO – Strengths and Structural Issues
• EPFO manages ₹22 lakh crore, covering 6.7 crore workers.
• Strengths:
- Offers forced retirement savings
- Backed by government guaranteed returns
- Significant safety net for formal workers
• Challenges: - Limited coverage – majority of India’s labour force is informal
- High administrative cost and complexity
- Poor customer service and delayed claims
- Low pension adequacy
- Design is employer-centred instead of worker-centric
Reforms Mentioned
• Introduction of Aadhaar-linked Centralised System for Seeding and Authentication (CSSA).
• Shift from employer dependence to portable individual retirement accounts.
• Move toward lifetime solutions instead of isolated job-based accounts.
• EPFO exploring better fund management and actuarial discipline.
Important Data Points
• EPFO covers only 13% of the workforce.
• Government pensions are 8.5% of GDP.
• 1 in 4 Indians may live beyond 70 years – expanding retirement dependency ratio.
Relevant Prelims Points
• EPFO – Statutory body under Ministry of Labour & Employment.
• EPS-95 – Employees’ Pension Scheme, defined benefits.
• NPS – National Pension System, regulated by PFRDA.
• Social Security Code 2020 – Consolidates 9 labour laws, expands pension coverage.
Relevant Mains Points
Issues in Pension Security in India
• High informal workforce → limited pension coverage
• Low financial literacy in retirement planning
• Slow reform momentum in EPFO
• Fragmented pension ecosystem: EPFO, NPS, Atal Pension Yojana (APY)
Significance of Pension Reform
• Ensures social security and economic dignity
• Reduces old-age poverty
• Encourages formalisation of workforce
Way Forward
• Universal portable social security accounts
• Convergence of EPFO, NPS, APY under a unified pension architecture
• Use Aadhaar for lifetime pension identity
• Introduce professionally managed pension funds
• Promote tax incentives for retirement savings