India's ambitious vision to transform into a developed economy by the year 2047 faces a critical, yet often overlooked, challenge: ensuring retirement security for its vast population. Despite a noticeable shift of household savings into formal financial channels, the nation's pension assets remain alarmingly low at just 14% of GDP, a figure that pales in comparison to other similar economies.
Budget 2024: A Pivotal Moment for Pension Reforms
The upcoming Union Budget presents a golden opportunity for the government to accelerate India's transition into a 'pensioned society.' Strengthening and expanding the reach of the National Pension System (NPS) is seen as the cornerstone of this mission. Financial experts have outlined five targeted interventions that could make a transformative difference.
1. Tax Incentives for the Self-Employed Workforce
A staggering 58% of India's workforce is self-employed, as highlighted in the Economic Survey 2024-25. Unlike their salaried counterparts who benefit from structured schemes like EPF and corporate NPS, this massive segment largely operates outside any formal retirement safety net.
The old tax regime's Section 80CCD(1B), which provided an extra ₹50,000 deduction for NPS contributions, was a powerful motivator. Its absence in the new tax regime has weakened the incentive for retirement planning. Re-introducing this benefit under the new regime, potentially with a higher annual limit of up to ₹1.2 lakh, could encourage early and consistent participation in pension savings, reducing future fiscal burdens on the state.
2. Mandatory Pension for Gig and Platform Workers
India's gig economy is booming, with an estimated 1 crore workers today, a number projected to swell to 2.35 crore by 2029-30. While the Social Security Code, 2020 acknowledges them, a structured retirement savings plan is missing.
Proposing a modest mandatory contribution of 2–3% by digital platforms directly into the NPS accounts of these workers can bridge this critical gap. This system-driven, default mechanism would help build a long-term retirement corpus without impacting their immediate cash flow, aligning perfectly with the government's inclusion agenda.
3. Rationalising Tax Caps for Salaried Employees
For salaried individuals, the current combined cap of ₹7.5 lakh per annum on tax-exempt employer contributions to EPF, superannuation, and NPS is a limiting factor. Often, EPF and superannuation consume most of this limit, leaving little room for NPS contributions—even though NPS permits an employer contribution of up to 14% of basic salary.
This disincentivises senior management from opting for NPS, which in turn dampens wider organizational adoption. Creating a separate sub-limit for NPS or removing it from this overall cap could significantly improve retirement adequacy, potentially raising replacement rates to around 65% when combined with other instruments.
4. Expanding Mandatory NPS Coverage in Private Sector
While the Employees' Provident Fund (EPF) is mandatory for most establishments, NPS remains optional. This is despite NPS's advantages of low cost, transparency, and market-linked returns. Currently, only about 21,000 corporates offer employer-linked NPS, compared to nearly 8 lakh establishments registered with the EPFO.
Making NPS tie-up compulsory for companies with, for instance, over 100 employees, would dramatically expand coverage. A blended retirement savings approach using EPF, superannuation, and NPS can offer private sector employees better long-term outcomes and diversification.
5. Enabling EPF-NPS Interoperability
India's workforce is young, mobile, and financially savvy. While EPF offers capital protection and fixed returns, NPS provides market-linked growth and flexible asset allocation. Although policy intent exists, operationalising seamless, tax-neutral transfers between EPF and NPS remains incomplete.
Enabling this interoperability would empower individuals to tailor their retirement portfolios according to their life stage and risk appetite. It would also channel long-term savings into productive capital formation, benefiting the broader economy.
In conclusion, the Union Budget can firmly place retirement security at the heart of India's economic agenda. By implementing these targeted measures—tax incentives, inclusion of gig workers, rationalising limits, mandatory coverage, and system flexibility—the government can deepen NPS adoption. This would not only fortify household financial resilience but also create a virtuous cycle of long-term capital formation, securing a stable future for both citizens and the nation's economy.
