SDG 8: Decent Work and Economic Growth | SDG 10: Reduced Inequalities
Institutions: Ministry of Finance | Pension Fund Regulatory and Development Authority (PFRDA)
The OECD Annual Survey of Financial Incentives for Retirement Savings (2025), covering OECD countries and four accession nations, highlights that most countries rely on financial incentives to encourage participation in asset-backed pension plans, especially where participation is voluntary. Both Tax Incentives and Non-Tax Incentives are under scrutiny for their cost-effectiveness and impact on replacement rates. Tax treatment globally often follows the EET (Exempt-Exempt-Taxed) system, with many nations allowing tax-free returns and withdrawals post-retirement.
The distinction between Tax Incentives and Non-Tax Incentives for retirement savings: Tax incentives are indirect subsidies provided through the tax code, arising when the tax treatment of retirement savings deviates from that of traditional forms of savings (e.g., tax deduction on contributions). Non-tax incentives, conversely, are direct government payments, such as matching contributions or fixed nominal subsidies, paid directly into the eligible individual’s pension account.
A comparison with India’s current system (NPS/EPF) reveals significant policy contrasts. While many OECD nations allow high contribution deductions (e.g., up to 40% of EUR 115,000 earnings in Ireland), India operates under strict ceilings (₹1.5 lakh under 80C plus ₹50,000 under 80CCD(1B), plus employer up to 14% salary under 80CCD(2) capped at ₹7.5 lakh aggregate).
Some OECD nations impose lifetime caps on tax-free accumulation (e.g., Ireland’s EUR 2M SFT; Australia’s AUD 2M transfer cap), while India has none. Furthermore, while the OECD highlights the prevalence of non-tax incentives like matching contributions (seen in the US, Ireland, and Australia) to support low-income earners, this mechanism is largely absent in India’s formal NPS/EPF structure.
Global retirement systems are also increasingly adopting auto-enrolment (e.g., 8% contributions in the UK, Ireland’s My Future Fund launching in 2026), contrasting with India’s roughly 10% formal coverage, though the Universal Pension Scheme (UPS) pilots offer a promising grassroots solution.
Policy Relevance for India
The detailed OECD analysis underscores critical gaps in India’s pension policy required for achieving equitable retirement security.oecd.pdf
Inequality Risk: India’s current reliance on high tax deductions (₹1.5 lakh + ₹50,000), coupled with tax-exempt returns and no lifetime cap on accumulation, carries the risk of skewing benefits towards high-earners (Exempt-Exempt-Taxed model users).
Targeting the Poor: Non-tax incentives (matching contributions) only in the formal sector means India misses a proven global tool for maximizing participation and pension adequacy among the vast unorganized and low-income sectors, an area where OECD nations actively deploy subsidies.oecd.pdf
Systemic Gaps: The comparison highlights the need for PFRDA to leverage policy levers like the UPS to dramatically improve coverage beyond the formal sector, potentially by embedding a targeted matching component to accelerate India’s progress toward global retirement security standards.
Follow the full news here: Annual survey of financial incentives for retirement savings