Meaning and Concept

A pension fund accumulates contributions during an individual’s working life and invests them in diversified financial assets. On retirement, the accumulated corpus is used to provide monthly pensions or annuity-based income.

The core objective is to ensure income continuity in old age and reduce dependence on family or state support.

Regulatory Framework in India

Pension funds in India are regulated under a dedicated statutory framework created to:

• Protect the interests of subscribers
• Ensure transparency and accountability
• Promote retirement savings across all sections of society
• Regulate pension intermediaries and fund managers

Major Pension Schemes in India

National Pension System

A contribution-based pension system open to government employees and the general public.
Contributions are invested in a mix of equity, government securities, and corporate bonds.
The pension amount depends on contributions and market-linked returns.

Atal Pension Yojana

A social security scheme targeted at the unorganised sector.
It provides a guaranteed pension after the age of 60, based on the contribution level chosen.
Designed to encourage small but regular retirement savings.

Employees’ Pension Scheme

A pension scheme for organised sector employees.
Funded mainly through employer contributions.
Provides defined pension benefits linked to service period and wages.

Types of Pension Funds

Based on Benefit Structure

• Defined Benefit Plans: Pension amount is fixed in advance and not linked to market performance.
• Defined Contribution Plans: Pension depends on contributions made and returns earned on investments.

Based on Management

• Public pension funds managed by government or public institutions
• Private pension funds managed by professional fund managers under regulatory supervision

Investment Pattern

Pension funds follow a long-term and risk-balanced investment approach.

• Government securities for capital safety
• Corporate bonds for stable income
• Equity instruments for long-term growth
• Asset allocation norms are designed to limit excessive risk

Importance of Pension Funds

• Provide financial security in old age
• Reduce elderly poverty and social dependency
• Mobilise long-term savings for economic development
• Support infrastructure financing and capital markets
• Promote financial discipline and retirement planning

Challenges in India

• Low pension coverage, especially in the unorganised sector
• Limited financial literacy and awareness about retirement planning
• Irregular incomes affecting contribution capacity
• Inflation and longevity risks reducing real pension value
• Dependence on market performance in contribution-based schemes

Way Forward

• Expanding pension coverage among informal workers
• Strengthening financial literacy and awareness programmes
• Improving portability and flexibility of pension accounts
• Encouraging early enrolment through incentives
• Developing a stronger annuity and retirement income ecosystem

Pension funds are essential for ensuring dignified ageing, economic stability, and inclusive social protection in the long term.