India Case Study - How Incentives Can Boost Pensions For Informal Sector Workers

Overview

This case study examines India’s evolving approach to pensions for informal sector workers, from the early NPS-Lite Swawalamban co-contribution model to the much larger Atal Pension Yojana (APY). Unlike most pension schemes for informal workers, that are defined contribution, the APY is a defined benefit scheme that promises a guaranteed monthly pension of Rs 1,000 to Rs 5,000 from age 60, with the government underwriting the guarantee if investment returns are insufficient. APY has reached around 70 million accounts, equal to about 13% of the informal sector, far exceeding newer schemes such as PM-SYM and PM-KMY, despite those offering a 100% matching contribution.

India's experience suggests that guaranteed retirement income, low-cost centralised infrastructure, easy digital enrolment, and broad access channels can be more effective than matching incentives alone in expanding pension coverage.