Statistics show that pension paid by the government as a percentage of GDP, rose from 0.6% to 1.6% between 1990-2002. Pension payment is today an open ended liability and with rising longevity. In 2001, 76 million people were above the age of 60 years, which was 55 million in 1991 – showing a rate of growth of 3.8% per annum during the decade. Absence of social security and rising dependency ratio in India – from 0.67 in 1998 to 0.85 in 2002 has also added to the need for a formal pension system.

Pension scheme proposed would reach out to 89% of population uncovered under formal pension system. The regulatory framework is currently fragmented lacking individual choice and portability that could have future implications for the labour market. Poor management issues in some of the funds (like Seamen ’ PF) that have promised of unsustainable return by fund and led to default by PF commission has also enforced government to look into the matter.