Modi Govt Cannot Afford to Ignore Its Broken Retirement and Entitlement Planning For Seniors

Around the world, aging democracies are struggling to manage their finances as older voters push back against any attempt to reform pensions or reduce entitlements.

Our recent article on the issue argued that this growing “gerontocratic veto” is making it harder for governments in democratic spheres to invest in the future, education, healthcare and infrastructure, because budgets are increasingly tied up in supporting ageing populations.

India, while still relatively young in its workforce composition, is aging fast and risks heading down the same path. But unlike the richer countries of the industrialised West, India doesn’t have either the fiscal space to absorb such pressure nor the political will to do much about it.

India’s own broken and deeply unequal pension and retirement planning system for its senior citizenry is a cause of serious concern. Built for the small, salaried workforce, it leaves out millions of informal workers and elderly women who have no retirement support.

Organisations and contributory schemes like the Employees’ Provident Fund Organisation (EPFO) and the National Pension System (NPS) are designed for formal employment, which covers only about 10% of India’s workforce. For everyone else – agricultural labourers, domestic workers, street vendors – retirement remains an unattainable fiction.

Just 12% of Indians are covered by a formal pension scheme and only 29% of the elderly reported having access to social security schemes such as old-age pensions, contributory pensions or provident funds, per one estimate.

Many elderly Indians, especially in rural areas, continue to work well past old age, often in physically taxing, poorly paid jobs simply to survive. Even modest public transfers such as the Indira Gandhi National Old Age Pension Scheme are meagre, often less than Rs 200-500 a month, and plagued by inconsistent delivery.

In many villages, elders rely almost entirely on family members for sustenance, placing additional economic pressure on households already managing precarious incomes.

This deep pension divide has created a system where old age is defined more by dependence and vulnerability than by dignity or security.

The economic reality is stark: with a large share of income in elderly households going towards food and healthcare, any disruption, be it illness, inflation or family crises, can quickly tip them into poverty. In rural India, food and health expenses alone account for a majority of spending among households. Without reliable pensions, there is no safety net to prevent destitution.

While the challenges are structural, they are not uniform across the country. Some states have pioneered more inclusive, rights-based pension models that offer valuable lessons. Others lag far behind, leaving millions without support. And within this fragmented landscape, elderly women face an even deeper crisis of invisibility and exclusion.

It is to these state-level disparities and gendered dimensions of pension insecurity that we now turn.

India’s pension faultlines

As the number of elderly Indians rises sharply in the coming decades, the country faces a pressing policy challenge, of how to reform pensions in ways that strengthen income security, streamline access and align entitlements with demographic realities.

Before considering models for reform, it is essential to understand how India’s pension landscape fractures along geography, gender and institutional capacity.

Across states, access to and the adequacy of pensions are shaped less by uniform standards than by variations in administrative design and political prioritisation. Southern states such as Kerala have developed rights-based approaches.

Kerala’s social security pension scheme offers monthly payments of Rs 1,600, delinked from below poverty line lists, achieving near-universal enrolment. Independent surveys consistently report that Kerala has among the lowest proportions of elderly citizens without any income support, illustrating how targeted policy interventions can mitigate late-life deprivation.

Delhi provides relatively high benefits, with Rs 2,500 monthly to seniors above 70, though gaps remain in delivery consistency and beneficiary awareness. In contrast, populous states like Uttar Pradesh and Bihar allocate significantly smaller sums, typically between Rs 500 and Rs 1,100.

These disparities have material consequences. In the lowest-income districts, small cash transfers can substantially affect nutritional security and health resilience.

Such unevenness compounds India’s macroeconomic constraints. Unlike OECD economies, which expanded welfare commitments when their populations were younger and fiscal balances more robust, India is entering its ageing transition with narrower budgetary headroom. Even incremental increases in pension spending generate pressures on state finances already strained by food security programmes, healthcare liabilities and rising debt service costs.

Yet the alternative – persistently underfunded pensions – reinforces dependence on household transfers and constrains the capacity of younger earners to save and invest, perpetuating intergenerational cycles of poverty and reducing aggregate consumption growth. For the 88% of Indians employed informally without formal pension coverage, this exclusion is not only a social risk but a structural economic vulnerability.

Within this fragmented environment, elderly women face additional layers of disadvantage. They live, on average, five years longer than men but typically enter retirement with fewer accumulated resources.

Just 7.8% of elderly Indian women who have ever worked in the organised sector receive a pension, as opposed to 23.2% of men, while 89.2% of elderly women are not likely to ever receive one.

Widowhood increases vulnerability further, and fewer than one in four eligible widows over 60 years of age and below the poverty line access the Indira Gandhi National Widow Pension. In several states, awareness of entitlements remains limited, and procedural obstacles including biometric mismatches, dormant bank accounts and low digital literacy frequently impede even those who qualify on paper.

These inequities are reinforced by fragmented institutional responsibilities. Pension administration is split across multiple entities.

The Ministry of Personnel manages civil service pensions, the finance ministry oversees the NPS and the Ministry of Labour administers the EPFO. Overlapping mandates and limited cross-department coordination result in chronic delays and diluted accountability.

Moreover, pensions have remained a low-salience political issue, attracting less electoral attention compared to more visible cash transfer programmes. Consequently, despite clear evidence of rising demographic pressures – the elderly population is projected to reach over 340 million by 2050 – systematic reforms have struggled to gain policy traction.

The interaction between geography, gender and administrative fragmentation continues to define whether older Indians can achieve even basic income security. Yet this trajectory is neither inevitable nor immutable. Global experience offers instructive models – universal, contributory and hybrid frameworks that have improved coverage and resilience in comparable contexts.

Building a pension system that works for all

India’s pension question is, at its heart, a question of how a society imagines dignity. For too long, pensions have been treated as a discretionary benefit reserved for a narrow slice of salaried workers, while the majority of older people navigate old age as a private burden rather than a collective responsibility. This is neither an economic inevitability nor a cultural given. It is a design failure, and one that can be corrected.

A credible first step is to establish a universal, non-contributory basic pension that decouples security in old age from formal employment histories. Such an approach does not replace contributory schemes but instead forms a foundation below which no citizen is allowed to fall. It signals that retirement income is not a matter of charity but a baseline public commitment.

To make this promise real, policy must embrace simplicity. Documentation needs to be streamlined so that a single proof of age and residence is sufficient to access benefits. Digital systems should be reimagined to assist rather than exclude. Proactive enrolment drives, door-to-door verification and human support will do more to build trust than portals and call centres alone.

Just as importantly, pensions deserve statutory protection. A dedicated floor for social pensions in state budgets can prevent spending from becoming an afterthought squeezed by election cycles or fiscal shocks.

Finally, any serious reform must be anchored to regular inflation adjustments and demographic reviews so that adequacy is never a static promise but a living one.

A pension system reflects not merely what we can afford, but what we choose to value in a nation of more than a billion people. If the Indian government, particularly the Modi administration, is willing to reimagine retirement as a shared guarantee rather than a privilege at the national level, it will need to chart a path that is not only fiscally sustainable but morally coherent.

So far, the evidence in this regard is acutely weak and apathetically ignored by the government and its bureaucracy.

Deepanshu Mohan is a professor of economics, dean, IDEAS, and director, Centre for New Economics Studies. He is a visiting professor at the London School of Economics and an academic visiting fellow with AMES, University of Oxford.

With research inputs from Ankur Singh, Saksham Raj, Anubhi Srivastava and Aditi Lazarus, who are all research assistants with the with Centre for New Economics Studies.

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