Changing pension landscape in India

The NPS Vatsalya scheme proposed by the Central Government in the Union Budget 2024 appears to be a true game changer, nudging the gen Alpha to turn into astute and savvy investors by getting early onto the prudent financial behaviour bandwagon.

- SOUMYA KANTI GHOSH

Such reforms unleashed in the pension sector promise to put India on a fast dial vis-à-vis developed nations like the United States. It may be noted that even in the US, younger cohorts of the working population, chiefly those at the bottom ladder of contractual remuneration/benefits, have been contributing little toward retirement in worker-managed pension plans such as 401(k)s. In fact, there is increased pressure to allow more corpus to flow into private equity giants like KKR and Charles Schwab/Fidelity. That should be a lesson apparent for us to take calibrated and calculated steps while launching schemes. Against this background, the idea of intronew NPS ducing Vatsalya looks perfectly timed.

Pension sector reforms in India started with the OASIS report in 1999 as part of the financial sector reforms. The basic aim of these reforms was to transform the financial markets on free market principles. However, the major fillip in this respect was taken when in 2003 the Central Government in the Budget announced winding up of the pay-asyou-go (PAYG) pension for central government employees and migrate all new employees to the then new pension scheme (NPS) which was a defined contribution scheme (DC). It was then made a mandatory scheme for new recruits in the Central Government (excluding the armed forces) from January 1, 2004.