The new pension system may push the prospect of enlarging the market size to a whopping $95 bn by 2025.

The ever-increasing longevity and the retirement provision based on inter-generational income transfers may not be a suitable option. There is a mismatch in the equation as more people are living longer and working populations are decreasing. In the long run, there are fewer workers supporting each retiree which is leading to a crisis. Against this backdrop, the developing countries are acknowledging the need for individuals to play a key role in generating retirement income. In India, retirement benefits are available to only about 11% of the working population, and the financial burden on the government and the employer is rising to alarming levels. Moreover, the number of old people above 60 years of age is increasing rapidly with an annual growth of 3.8% (75.9 million). Besides, a variety of problems plague the pension system. The gradual collapse of the traditional old age support mechanisms and the rise in the elderly population emphasize the need for strengthening the formal channels of retirement savings.

Existing retirement savings schemes, such as provident and pension funds, predominantly cover workers in the organized sector, constituting only about 10% of the aggregate workforce. Around 90% of the working population in the unorganized sector has no access to any formal system of economic security for senior citizens. This limited coverage is further shrinking against the growing informal workforce while the size of the formal workforce is, more or less, on stagnant mode. To address these issues, the Indian Government has adopted a new pension scheme, aiming to replace assured returns with a defined benefit system. This is likely to change the dynamics of provident fund money that is being saved over the years. The new scheme is a contribution scheme rather than a benefit scheme.

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