India's pension system, while designed to provide financial security in old age, is characterized by a complex web of regulatory bodies and schemes, leading to fragmentation and raising questions about the effective protection of retirees.

The Regulatory Landscape

Several regulatory bodies oversee different aspects of the pension system. The Employees' Provident Fund Organisation (EPFO) manages corporate pensions, including the Provident Fund, Employees' Pension Scheme, and Employees' Deposit Linked Insurance Scheme. The Pension Fund Regulatory and Development Authority (PFRDA) regulates government and voluntary schemes like the National Pension System (NPS) and Atal Pension Yojana (APY). Insurance Regulatory and Development Authority of India (IRDAI) regulates pension products offered by insurance entities. The Ministry of Finance regulates the Public Provident Fund (PPF). The Central Board of Trustees oversees the EPFO, which falls under the Ministry of Labour.

This multiplicity of regulators can lead to overlapping supervisory roles and a lack of consistency, potentially making pensions a less attractive financial product.

Challenges and Concerns

• Fragmentation: The pension system is fragmented with overlapping schemes, especially for informal and gig workers. This adds complexity and limits scalability.
• Low Coverage: A significant portion of the workforce, particularly in the informal sector, remains outside the purview of formal pension schemes. Only about 12% of the workforce is covered by formal schemes.
• Inadequate Savings and Benefits: Many pension schemes suffer from low contribution rates, resulting in insufficient corpus accumulation. Benefits are heavily concentrated in the public and organized private sectors.
• Lack of Awareness: Low financial literacy and awareness about retirement planning, especially in rural and unorganized sectors, hinder participation in voluntary pension schemes.
• Sustainability Issues: Concerns exist regarding the adequacy and long-term liquidity of pension funds.
• Exclusion of Marginalized Groups: Gender disparities in workforce participation and income limit women's access to pension benefits. Similar exclusion exists for tribal populations and migrant workers.

Addressing the Challenges

Recognizing these shortcomings, the government has taken steps to address the challenges and strengthen the pension sector.

• Forum for Regulatory Coordination: The government has established a high-level committee, the Forum for Regulatory Coordination and Development of Pension Products, bringing together top financial regulators and key ministries to streamline India's fragmented pension system. The forum aims to harmonize regulations, remove overlapping supervisory roles, and enhance coverage.
• Unified Pension Scheme: There have been discussions and developments around a unified pension scheme to provide a basic level of social security for all citizens.
• Increasing Minimum Pension: There have been considerations to increase the minimum pension under the Employees' Pension Scheme (EPS) to provide better financial security to pensioners.
• Promoting NPS and APY: The government is promoting voluntary schemes like the National Pension System (NPS) and Atal Pension Yojana (APY) to expand pension coverage to the unorganized sector.
• Improving Financial Literacy: Efforts are needed to improve financial literacy and create awareness about the importance of retirement planning.

The Role of PFRDA

The Pension Fund Regulatory and Development Authority (PFRDA) plays a crucial role in regulating and developing the pension sector in India. PFRDA's objectives include promoting old-age income security, protecting the interests of subscribers, and ensuring the orderly growth of the pension market. PFRDA regulates the NPS and APY, and also appoints various intermediaries such as Pension Fund Managers and Central Record Keeping Agency.

Protecting the Retiree

Ultimately, the protection of the retiree depends on a multi-pronged approach involving effective regulation, increased coverage, adequate savings, and financial literacy. The newly formed Forum for Regulatory Coordination and Development of Pension Products has the potential to drive meaningful change by fostering choice, portability, and good governance. However, bold, long-term reforms are needed to move beyond incremental steps and create a truly inclusive and sustainable pension system that safeguards the financial well-being of all retirees.