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Data released by DSP Pension Fund shows that the retirement savings gap i.e. the difference between desired retirement income and actual retirement income will grow 10% annually to reach $96 trillion by 2050.
Currently, India’s pension market’s size is only 3% in comparison to the national GDP. This is significantly lower compared to other countries.
For instance, Japan’s pension market size is about 31% of its GDP while Hongkong’s pension assets are 54% compared to its GDP.
Canada and USA’s pension markets are 90% and 98% of their GDP size, respectively. Australia’s pension market also shows high levels of penetration in this segment and is about 1.5x its GDP. This shows a significant scope of growth in the Indian pension market.
Need for a developed pension market
The under-penetration of the pension market is important as the number of people with above 65 years of age is expected to grow 2.5x by 2050. By then, people in this age bracket will form 15% of the national population.
In addition, the average post-retirement time period in India is also expected to be 20 years due to higher life expectancy. On the other end, the size of the average Indian household has actually decreased from 4.6 in 2001 to 3.9 in 2018.
NPS growth & current industry trends
In the last decade, Indian retail investors have reduced their reliance on cash and bank deposits from 62% to 44% and have moved their savings for investments. Correspondingly, there has also been a growth in private sector NPS whose AUM has grown at the rate of 26% in the last five years to reach Rs. 2.78 lakh crore.
NPS subscriptions have also increased by 128% in this period. NPS Vatsalya scheme where parents can park their funds for their children through NPS has also registered over 86,000 subscribers since its introduction in September 2024.
Looking ahead, the private sector NPS AUM is expected to reach over Rs. 9.12 lakh crore with over 1.5 crore subscribers in the next five years.
Key drivers of growth in NPS
The key factors which can be attributed to this growth include inclusion of NPS in both old and new tax regimes, tax benefits on contribution in NPS Vatsalya, adoption of private sector fund managers among government employees and increase in uptake of NPS by the younger generation in the 20-30 age group.
Current measures like adoption of the latest technology like AI in fund management, customer onboarding and servicing and recent additions to NPS like the balanced life cycle fund where equity and debt allocation of an investor changes with age can lead to a major breakthrough for the growth of NPS in the future according to DSP pension fund.
