Towards a secure retirement

Ultimately, the goal of policy should be to encourage and enable individuals to save for old age. This is best done with a system that is easily accessible, provides investment choice, is low-cost, and allows portability across occupations and locations. In a country like India, which has a large informal sector, mandating contributions, or providing tax-breaks, can only affect the formal-sector workforce. To encourage the informal sector to save would require a very different combination of products, infrastructure and intermediaries. One initiative is the NPS-Swavalamban scheme that provides a matched contribution by the government, and uses a network of financial services firms and NGOs to reach out to those usually excluded from formal finance. Little is known, however, about the success of the Swavalamban scheme.

Increasing mandatory contributions towards an inefficient system like the EPFO is not the way to prepare a country for providing old-age income security. The EPFO will provide a greater service by being the channel through which its members can connect to a more modern pension system. The finance ministry and the PFRDA will provide a greater service by strengthening the original design principles of the NPS and plugging loopholes that make the NPS Swavalamban more efficient, such that the NPS becomes the one-stop pension shop for Indians from all walks of life.

The writer is a research economist at the Indira Gandhi Institute of Development Research.

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