India’s retirement-income replacement rate is currently around 35–40%, compared with a roughly 60% level globally, according to Pension Fund Regulatory and Development Authority (PFRDA) Chairman S. Ramann, as the regulator seeks to cover 30 crore people through the National Pension System (NPS) and Atal Pension Yojana (APY) over the next four to five years.
“Roughly, the world says your replacement rate should be about 60%. So 60% of your last pay should roughly be the kind of money that you get when you are in retirement mode. In India, it’s in the region of about 35% to 40%,” Mr. Ramann said during an interaction in Chennai on Friday.
“So we have to encourage people to invest more. That’s the only way,” he added.
The question of how much people need to save for retirement came up as PFRDA seeks to expand pension coverage beyond government employees.
Asked whether the regulator would set a target for how much an individual should save to secure a decent retirement income, Mr. Ramann said it was difficult to predict how much a person would ultimately save.
“It’s impossible to, you know, predict that,” he said.
He said PFRDA could instead provide illustrations of how regular contributions could potentially grow over time.
“I can only help you by saying that if you save 20,00 rupees every month from past performance, I can tell you that it is possible that after 18 years, your corpus may be ₹10 lakhs. That’s the kind of guidance that we can give,” Mr. Ramann said.
He said the amount an individual saves depends on their lifestyle and priorities.
“I cannot have any control over that. How much you save is totally dependent on your lifestyle and your priorities. So, we can only encourage people to save for the long run,” he said.
Contributions among NPS subscribers currently range from ₹200 a month to ₹2 lakh a month, Mr. Ramann said
“People are contributing 200 rupees a month. People are contributing 2 lakh rupees a month. So both exist,” he said.
PFRDA targets non-government sector
PFRDA currently has about 2.2 crore NPS subscribers, including government and non-government subscribers, Mr. Ramann said.
The regulator is focusing on the non-government segment, while government enrollment is growing on its own.
“Our job is to focus on the non-government sector because those are the people who don’t have the benefit of NPS, they don’t know about NPS and we must bring them into the NPS,” he said.
PFRDA wants to cover 30 crore people through NPS and APY over the next four to five years, Mr. Ramann said, adding that APY has around 10 crore customers.
The regulator is conducting around 350–400 outreach programmes across the country, targeting groups including farmers, milk cooperatives, farmer-producer organisations and MSMEs.
Mr. Ramann also said PFRDA sees significant scope to expand pension coverage among self-employed people and gig workers.
Digital push for NPS
PFRDA is relying on digital platforms to expand NPS distribution. The StAR NPS platform is being developed with BSE, while NPS Tatkal is being developed with NPCI and BHIM, Mr. Ramann said.
The platforms allow banks, pension funds and distributors, including mutual fund distributors, to onboard subscribers digitally. Contributions can also be made through the UPI.
PFRDA provides distributors with a ₹200 onboarding fee and roughly 0.3% of assets under management (AUM) as annual commission, Mr. Ramann said.
He said digital onboarding could substantially reduce the cost of acquiring customers.
“Between this, I am confident that we should be able to get people interested because on these digital platforms, it is costing zero to the distributors, be it banks or pension funds to bring in the commission, to bring in the customers,” he said.
PFRDA seeks more resilient returns
Asked what major pension reform he would prioritise, he said the focus would be on “resilience in our returns.”
He said pension funds need to diversify across asset classes to generate better returns while keeping volatility low.
Mr. Ramann said the system currently has around 5% of the corpus in alternative assets, including REITs, InvITs and AIFs.
PFRDA is examining how pension funds can develop the expertise and capability to make direct investments in companies, he said.
The PFRDA chief cited Canadian pension funds’ investments in India as an example of the investment capability he wants Indian pension funds to develop.
The objective, he said, is to achieve “a good double digit return year after year” while maintaining low volatility.
UPS cost higher than NPS, lower than OPS
On the Unified Pension Scheme (UPS), Mr. Ramann said its cost to the government would be higher than NPS but substantially lower than the Old Pension Scheme (OPS).
“So, if I were to say NPS costs the government ₹100, UPS may cost government ₹170, ₹180. OPS costs the government ₹450. So, that’s the kind of difference we are talking about,” he said, adding that “OPS is unsustainable.”
Mr. Ramann said 10–12 State governments have announced UPS, with individual schemes potentially containing variations.
At the Central Government level, about 1.3–1.4 lakh employees opted for UPS out of roughly 22 lakh, he said, exuding confidence that UPS should work in the long run, particularly if inflation comes down.
Competition among pension funds
PFRDA has 14 pension fund managers, and Mr. Ramann said greater competition could improve investment returns and expand the reach of NPS.
Asked what subscribers would gain from having more pension fund managers, he said the funds are primarily focused on investment and getting better returns for subscribers, while also helping expand reach.
“Pension funds do two things. One, they are largely focused on investment and getting better returns for their subscribers. That is really where the expertise lies and more and more people who come in can provide better competition in terms of the returns that they provide to the customers,” he said.
NPS Vatsalya, Swasthya
PFRDA’s NPS Vatsalya, which allows parents or guardians to build retirement savings for children, has crossed four lakh unique customers, Mr. Ramann said.
The regulator is also preparing NPS Swasthya, which combines pension savings with a dedicated health corpus and top-up health insurance.
Mr. Ramann said PFRDA has completed a proof of concept and finalised the product design. The product is likely to be launched in a month.
PFRDA has also extended the age up to which subscribers can remain invested in NPS to 85, alongside changes aimed at providing greater flexibility around entry, exit and scheme selection.
Asked whether Gen Z needs to be treated differently when it comes to pension saving, Mr. Ramann said the regulator does not want to take a softer approach with younger workers.
“So, you may call yourself Gen Z…you’re also going to become old. So, if you do not start saving today, your old age is not going to be very good,” he said. He added that “the discipline of saving is the biggest change that we hope NPS will bring in.”
