Page 46 - Banking Finance May 2025

ARTICLE

The Evolution of India's

Pension System: A

Comprehensive

Review

Dhaval Kansara
Chief Manage
Union Learning Academy
Digital Transformation, Mumbai

India's retirement framework has transformed significantly over the past two decades. The National
Pension System (NPS), initially called the New Pension Scheme, marked a major shift in India's
approach to pension management. More recently, the Unified Pension Scheme (UPS) represents
another important development.

Introduction No formal pension structure for the private sector
India's retirement framework has transformed significantly Increasing elderly population
over the past two decades. The National Pension System Rising life expectancy creating longer retirement
(NPS), initially called the New Pension Scheme, marked a periods
major shift in India's approach to pension management.
More recently, the Unified Pension Scheme (UPS) represents These factors led to the establishment of the Pension Fund
another important development. This article examines these Regulatory and Development Authority (PFRDA) and the
pension frameworks, their impact on India's economy, and launch of the National Pension System in January 2004.
retirement security architecture, with particular focus on
the UPS.
Core Structure of the NPS
The NPS introduced a defined contribution model to replace
Historical Context and Need for Reform
the defined benefit structure. Under this system,
Before 2004, India had a defined benefit pension system for contributions are fixed while benefits depend on investment
government employees that promised fixed retirement returns, shifting investment risk from the government to
income regardless of contribution. This created an individual subscribers.
unsustainable fiscal burden, with pension payments
consuming approximately 8-10% of India's GDP by the early Key Structural Elements
2000s.
Two-Tier Account System:
The Old Pension Scheme (OPS) faced several challenges: Tier I: A non-withdrawable retirement account with tax
Growing fiscal pressure on government finances benefits

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