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India's retirement income replacement rate is just 35-40%
Mint··22 Aug
India's retirement income replacement rate, the share of pre-retirement income that retirees receive, stands at around 35 to 40 percent, well below the global average of about 60 percent, according to PFRDA chairman S. Ramann. He said monthly contributions to the National Pension System vary widely, ranging from 200 rupees to 2 lakh rupees a month.
Prism
What It Means For You
- If your retirement income replaces only 35 to 40 percent of your last salary, you may need to actively save more through NPS or other instruments to maintain your lifestyle.
- Anyone contributing small, irregular amounts to NPS should note the wide range, from 200 rupees to 2 lakh rupees a month, shows how much room exists to increase savings.
- Workers without formal pensions can consider the Atal Pension Yojana, one of the schemes PFRDA is expanding, as an affordable retirement savings option.
What's Happening
- PFRDA chairman S. Ramann said India's replacement rate trails the global average of about 60 percent by a significant margin.
- The regulator is working to expand coverage toward a combined target of 30 crore subscribers under the National Pension System and Atal Pension Yojana.
- Ramann attributed the low replacement rate partly to inconsistent and often minimal monthly contributions by a large share of subscribers.
How India's Pension System Has Evolved
- The National Pension System was opened to all citizens in 2009, after initially covering only government employees who joined service from 2004 onward.
- Pension systems in countries with higher replacement rates typically combine mandatory employer contributions with government-backed social security payments, unlike India's largely voluntary NPS structure.
- The Atal Pension Yojana, launched in 2015, targets unorganised sector workers who otherwise lack access to formal retirement benefits.
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