Mint BFSI Summit | Securing India’s retirement future: Deepak Mohanty’s vision for the National Pension System | Mint

The National Pension System (NPS) introduced in 2004 for government employees has since been extended to others but adoption has been slower than desired, said Deepak Mohanty, chairperson of the Pension Fund Regulatory and Development Authority (PFRDA), at the 17th edition of the Mint BFSI Summit and Awards on Friday.

Underscoring a pressing need for greater pension coverage given India’s rapidly ageing population and increased life expectancy, such challenges must be overcome to ensure adequate retirement security for all, Mohanty said.

“In the past, pension was perceived to be the privilege of government employment. It is no longer so with the introduction of NPS in 2004 first for government employees and then extended to private corporations, including a common person in 2009 and now to children with the NPS Vatsalya, which we launched in September 2024,” he said.

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On the reasons for the slower-than-desired adoption, Mohanty highlighted three key factors: lack of financial literacy and awareness, the nature of India’s labour force, and affordability.

On financial literacy, Mohanty said “only a third of adults surveyed across 39 countries by the Organization of Economic Cooperation and Development (OECD) reached the minimum target score of financial literacy”.

In India, the financial literacy level was found to be lower. The Reserve Bank of India and the National Centre for Financial Education found in a financial literacy survey that “only 25% of people are thinking of making retirement savings”, Mohanty said, emphasized the need for customized financial literacy programmes for India’s diverse population.

On the labour force, Mohanty pointed out that “the bulk of the workforce is engaged in the unorganized informal sector where they do not have access to occupational pension, such as in the organized sector”. 

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He acknowledged the government’s efforts to provide pension to low-income households through schemes like the Atal Pension Yojana, which has enrolled 73 million subscribers.

On affordability, Mohanty noted that India, with a per capita income of around $2,500, was still a lower-middle-income country. 

However, he expressed optimism that this will improve in a few years. “With sustained GDP growth, India, for sure, will progress to an upper-middle-income country with per capita income of upwards of $4,200 in the next decade. We aspire to be a high-Income developed country by the middle of the century. One implication of this is that the financial ability of our population to adapt to pensions would continue to increase with the rise of income,” Mohanty said.

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Harnessing the power of compounding 

The PFRDA chairperson highlighted the features and progress of the National Pension Scheme, emphasizing its robust regulatory framework, professional management, and competitive returns. 

NPS has provided an average return of 13.2% per annum in equity and 9.5% per annum for the government employees’ scheme since inception, Mohanty said.

As for the NPS Vatsalya scheme, he said it was accepted well, with 86,000 subscribers so far. 

“NPS allows any family member to join, ensuring a substantial corpus for retirement. NPS has become a family product, in the sense now any member of the family, from infancy to 70 years, can join NPS, as the vesting period is enlarged,” Mohanty said.

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NPS schemes allow individuals to harness the power of compounding to accumulate substantial corpus and ensure adequate pension on retirement, he added.

The chairperson also highlighted pension plays an important role in supporting India’s financial ecosystem. 

“Pension assets form a major chunk of global investment, estimated at around 43% of total assets under management in India,” he said. In India, pension assets are estimated to be around ₹50 trillion, or about $600 billion, although this is modest compared to the global figure of over $63 trillion, Mohanty said.