How Pensions Fail the Common Man

Social security in the form of pensions will be key to financial security of India’s elderly, experts say, but an IndiaSpend analysis of pension schemes for informal workers, farmers, traders and the self-employed shows low uptake and lower government spending than envisaged.

Further, those hired by the military under the Agniveer scheme receive no pension.

An Agniveer is entitled to leaves, uniform, pay and allowances during the service period of four years, and a ‘Seva Nidhi’ package--money deposited from their pay during service, amounting to Rs 5.02 lakh, matched by the government, along with interest--which will help them find employment in other sectors. But they are not eligible for any kind of pension or gratuity, Ex Servicemen Contributory Health Scheme, Canteen Stores Department facilities, Ex Serviceman status and other related benefits.

Meanwhile, a Member of the Legislative Assembly (MLA) in Madhya Pradesh for instance, regardless of their income, is assured a pension of Rs 20,000, even if they serve just for one day. The pension amounts for MLAs vary in different states--for instance, Delhi pays at least Rs 15,000 a month and Himachal Pradesh Rs 36,000 a month. Judges normally qualify for pensions only after 12 years of service and bureaucrats after 10 years.

The Unified Pension Scheme, which will replace the previous National Pension Scheme is a contributory scheme, and was approved in August 2024. It says that employees with at least 10 years of service receive a government pension. For those with 25 years of service or more, the pension amounts to 50% of their average basic pay from the last 12 months.

At the same time, old-age pensions for the destitute in various states are for amounts that are not sustainable, we found. For example, a 75-year-old citizen gets Rs 200 per month as an old-age pension from the Union government.

“The right to social security is of central importance in guaranteeing human dignity for all persons when they are faced with circumstances that deprive them of their capacity to fully realize their human rights,” the UN Human Rights office says.

The table below shows the current level of social protection we provide to our senior citizens. For context, a cooking gas cylinder, even subsidised by the government, costs over Rs 500.

Pensions focus on formal sector workers

“By 2050, 20% of India's population is expected to be over 60, double the current percentage, with many of these individuals coming from the informal sector where social security is inadequate,” Dipa Sinha, a development economist, says. “This demographic shift will likely drive up healthcare expenditure, and we must be prepared to address future challenges. It's crucial to avoid a situation where the elderly bear a significant health burden without adequate support. Introducing a universal pension scheme tied to minimum wage levels would ensure broader coverage and provide greater financial security for this growing elderly population.”

“In India, the top 10% of pension beneficiaries, primarily from the formal sector, receive 90% of media attention, while the lower 80%, mostly informal sector workers, are largely overlooked,” Sinha adds. “There is a need to focus towards social security for those working in the informal sector, ensuring that their needs are recognised and addressed.”

Pensions have been a major political issue in two of the last three Lok Sabha elections. Yet the debate has focused on government employees and not those from the unorganised sectors. For instance, in 2013, then Bharatiya Janata Party’s prime ministerial candidate Narendra Modi launched the 2014 Lok Sabha campaign from Rewari with General V.K. Singh on stage beside him, and highlighted the crucial issue of One Rank, One Pension in the armed forces. In 2024, the INDIA alliance emphasised the Old Pension Scheme (OPS), with several alliance-ruled states implementing it.

In India, workers in the formal sector benefit from built-in social security mechanisms, such as sick leave, provident fund contributions, minimum wages, health insurance, subsidised loans, and job security, says Shreya Sinha, a senior lecturer in business and society at Queen Mary at the University of London. “However, informal workers typically lack all of these benefits, making social security nets essential for their well-being. Workers in the informal sector urgently need such protections.”

For instance, hawkers are not covered under any pension scheme. There are approximately 10 million hawkers in India, and they are not eligible to enroll in the government’s social security schemes, leaving them highly vulnerable, says Mecanzy Dabre, deputy general secretary of the National Hawkers Federation. “We demand the inclusion of hawkers under the Employees' State Insurance Corporation (ESIC) to provide them with the necessary social security and protection. This step is essential to safeguard their livelihoods and ensure they have access to healthcare, financial support, and other benefits, which are fundamental rights for all hawkers.”

“Almost 90% of India’s workforce is not eligible to participate in any scheme that enables them to save for economic security during their old age,” said a 2020 report for an Old Age Social and Economic Security (OASIS) project commissioned by the Union Ministry of Social Justice and Empowerment. “As a result, there is a serious threat that a majority of these workers, who may not be below the poverty line in their working lives, might sink below the poverty line in their old age simply because they have not accumulated enough savings during their years in the workforce. This problem is further compounded as they will have to incur heavier expenditures on health during old age, neglect of which would only worsen their quality of life.”

The government has introduced schemes for informal sector workers but these fall short, our analysis shows.

Pradhan Mantri Shram-Yogi Maandhan

In the interim budget presented in February 2019, then finance minister Piyush Goyal introduced the Pradhan Mantri Shram-Yogi Maandhan scheme, a pension programme designed for unorganised sector workers. The minister claimed that this scheme would be one of the largest pension schemes in the world, managed by the Ministry of Labour.

Goyal announced that the scheme would provide workers in the unorganised sector, earning a monthly income of up to Rs 15,000, with an assured monthly pension of Rs 3,000 from the age of 60. This would apply to workers who made a small contribution during their working days.

India’s unorganised sector comprises an estimated 420 million workers earning Rs 15,000 or less per month, all of whom are eligible for this scheme, as per the Cabinet note, accessed through a Right to Information (RTI) request. The government initially projected that 100 million workers would enrol within five years. According to the Cabinet note, the plan was for 10 million labourers to join in 2018-19, followed by 20 million each year for the next three years, and 30 million in 2022-23, reaching the 100 million target by 2022-23.

However, the scheme’s dashboard shows that only about 5 million people have enrolled so far, 1.2% of the eligible workforce. The RTI response reveals that by July 2024, only 1.43 million subscribers remained active, accounting for less than a third of all enrollments. This means two out of every three workers who joined the scheme have since stopped contributions.

According to the Cabinet note, the projected expenditure for the scheme was set at Rs 241 crore for 2018-19, Rs 3,720 crore for 2019-20, Rs 6,100 crore for 2020-21, Rs 8,480 crore for 2021-22, and Rs 12,110 crore for 2022-23, amounting to Rs 30,651 crore over five years.

However, government spending over the last six years has been less than Rs 1,550 crore, that is, just 5% of the projected cost. The primary reason for the lower spending is due to the scheme’s low subscription rate, as the government matches contributions from workers. Fewer workers enrolling in and contributing to the scheme would result in lower budget utilisation.

A standing committee of Parliament, in its report tabled in March 2023, observed that, “As against the cumulative target of registration of 3 crore beneficiaries during 2020-21, 2021-22 and 2022-23 (as on December, 2022), only 5.22 lakh beneficiaries could be registered. The Committee are dismayed to note the under-utilization of allocated funds under the Scheme during the current fiscal. It is equally discouraging that there were huge shortfalls in achievement of physical targets during the last three years”.

We have reached out to the Ministry of Labour & Employment with questions about the significantly lower-than-projected subscriptions. We will update this story when we receive a response.

“The contributory pension scheme for workers in the unorganised sector is impractical,” Tapan Sen, general secretary of the Centre for Indian Trade Unions (CITU) and former member of Parliament, says. “First, given the unstable nature of their jobs, they often don’t earn enough to consistently contribute to a pension plan. Second, it's challenging for them to stay actively enrolled for the long term, typically 20-30 years, as their income is not stable. Third, there is uncertainty among workers about what happens to their corpus if they fail to make regular payments over time. We demand a basic pension for these workers, fully funded by the government.”

Mahesh Gajera, Programme Manager for the Aajeevika Bureau, a nonprofit working on issues of migrant workers in Ahmedabad, adds that most labour-intensive workers do not work until the conventional retirement age of 60 as their physically demanding jobs often force them to stop working by the age of 45-50 years. Similarly, their work is often seasonal meaning that they can not contribute regularly to a corpus.

“Pensions should be fully funded by the government,” says Gajera. “A viable model could involve the creation of a dedicated fund, for example financed through a cess on builders, to establish a corpus for construction workers' pensions and similar benefits for other informal sector workers,” he explains.

Maharashtra, he says, has the Mathadi boards which ensure monthly wages along with social security for ‘mathadis’--workers who carry a load on their backs or heads for purposes such as unloading, stacking, carrying, weighing and measuring. Gujarat has the Construction Workers Welfare Board, which collects a cess from construction companies for accident assistance to workers, subsidised food, pension, and other forms of medical and financial assistance to workers in need.

Pension Scheme for the Farmers

The Pradhan Mantri Kisan Maandhan Yojana (PMKVY) was launched in September 2019. This scheme offers a safety net for small and marginal farmers through a voluntary pension plan. Farmers aged 18 to 40 can receive a minimum pension of Rs 3,000 per month starting at age 60. They need to contribute Rs 100 a month (starting at around age 29), which is matched equally by the Union government.

Prime Minister Narendra Modi’s office, in a tweet, said, “The Scheme shall secure the lives of 5 Crore Small and Marginal Farmers by providing a minimum pension of Rs 3,000 per month, to those who attain 60 years of age.”

A cabinet note projected that the scheme would enrol 50 million farmers within three years, by 2021. By January 2025, about 1.9 million farmers--or 4% of the target--have joined, as per the scheme’s dashboard.

The Cabinet note had estimated that Rs 10,774 crore would be needed for the scheme’s implementation over three years. However, according to an RTI reply, the Union government has spent only Rs 495 crore on the scheme by September 2024.

In Punjab, an agrarian state, only 14,615 farmers have subscribed to the pension scheme over six years. Uttarakhand had just 2,513 farmers enrolled. In Goa, participation was even lower, with only 265 farmers joining the scheme in the same period as per the RTI reply.

We have reached out to the Department of Agriculture and Farmers’ Welfare with questions about the significantly lower-than-projected subscriptions. We will update this story when we receive a response.

A possible argument is that the low subscription rate and spending are due to the scheme being voluntary. However, other factors indicate that the scheme needs to be better designed to truly benefit farmers.

According to the National Statistical Office (NSO) in its 77th round of survey, over half (50.2%) of Indian farming households are in debt, with an average outstanding loan of Rs 74,121 per household. Given this, it’s unrealistic for the government to expect farmers to save and invest for the future.

Sinha, from the University of London, says that the eligibility criteria for the farmers’ pension scheme are far from straightforward. “Proving income, demonstrating ineligibility for other schemes, can be highly bureaucratic. From my fieldwork with farmers and farm workers, I’ve observed that such processes tend to be even more cumbersome in rural areas than expected.” She added that, with the ongoing inflation, she was unsure “how much value farmers place on contributing to a system for years, especially when it promises only a modest Rs 3,000 per month once they reach a certain age in the future.”

Nikhil Dey, founding member of Mazdoor Kisan Shakti Sangathan, states that “contributory pension schemes for farmers and workers are impractical. Pensions are a human right and should be universal to ensure a dignified life after retirement. For example, in Rajasthan, eligible citizens receive Rs 1,000, adjusted for inflation, benefiting around 1 crore people.” He stresses the need for a universal pension system, suggesting that “pensions should be equivalent to half the minimum wage”.

At the Mazdoor-Kisan Adhikar Mahadhiveshan (National Convention on the Rights of Workers and Peasants) held on September 5, 2022 at Talkatora Stadium, New Delhi, participants demanded a pension of Rs 10,000 for all workers. They also called for pensions to be extended to all poor and middle peasants, as well as agricultural workers, above the age of 60.

Pension Scheme for Traders

In 2019, a pension scheme for small traders and shopkeepers--the National Pension Scheme for Traders and Self-Employed Persons (NPS-Traders)--was launched. It is open to small shopkeepers, self-employed individuals and retail traders with a goods and services tax turnover below Rs 1.5 crore, and who are between 18 and 40 years old. The scheme is designed to benefit over 30 million small shopkeepers and traders.

According to a Cabinet note, the government projected that 25 million traders would enrol in the scheme by 2023-24. However, the dashboard shows that only 58,653 have signed up as of January 10, 2025, which is just 0.2% of the target. Moreover, RTI data reveal that until July 2024, of 53,674 enrolled only 19,242 were active subscribers.

The Cabinet note projected that the scheme would require a fiscal space of about Rs 10,000 crore for the period from 2018 to 2024. However, the RTI response reveals that the government has spent only Rs 165 crore, which is lesser than the Rs 200 crore allocated for Information, Education, and Communication of this scheme activities as per the Cabinet note.

The standing committee report tabled in March 2023 says, “The Committee was apprised that as on Dec 2022, 4979 beneficiaries were enrolled under NPS-Traders during 2022-23 against the original target of 25 lakh beneficiaries. As on 17.01.2023, the total number of beneficiaries since inception of the scheme is around 50,000. As informed by the Ministry, the target could not be achieved owing to the effects of pandemic and resultant lockdown.”

However, RTI data reveal a different picture. In 2024, the economy showed no impact from Covid-19. Yet, only 751 people subscribed to the scheme between January and July 2024, according to information received through RTI.

“The BE [budget estimate] for 2022-23 was Rs.50 crore which was reduced to Rs.10 crore at RE [revised estimate] stage and the actual expenditure as on 13.02.2023 was Rs.2 lakh leaving an unspent balance of Rs.9.98 crore,” the standing committee report noted. “The BE for 2023-24 has been drastically reduced from Rs.50 crore in 2022-23 to Rs.3 crore in 2023-24, in view of the significant reduction in the number of registrations.”

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