Previous Year Questions

Question :

Directions : Read the following passage carefully and answer the questions that follow.

In India, retirement planning has become a vital aspect of financial stability, with distinct patterns visible among different categories of workers. The first group consists of individuals who prefer the security of a traditional 9 - 5 job. These employees generally benefit from formal pension frameworks such as the Employees' Provident Fund (EPF), the Employees' Pension Scheme (EPS), and increasingly, the National Pension System (NPS). The strength of these arrangements lies in mandatory contributions from both employers and employees, which ensure long-term corpus building. Salaried workers also gain tax incentives under sections like 80C and 80CCD of the Income Tax Act. For them, the pension environment is relatively structured, with benefits tied to stable income and stringent statutory norms that guide participation.

A second group includes those who opt for part-time employment. Part-time work in India often falls outside the scope of employer-sponsored retirement schemes because eligibility criteria usually require minimum working hours or income thresholds. This creates a gap in long-term financial security for such workers. Unlike salaried employees in full-time roles, part-time workers rarely have access to EPF or EPS unless their employer voluntarily extends the benefit. As a result, their dependence shifts towards individual savings vehicles such as the Public Provident Fund (PPF), recurring deposits, or systematic investment plans (SIPs). The lack of formal employer support makes it crucial for part-time workers to independently allocate resources to retirement savings. Policymakers have highlighted this concern, but the system still largely favours full-time participation.

The third category comprises freelancers and business owners, who face the challenge of managing retirement security without the safety net of employer contributions. This group must proactively engage with voluntary pension schemes such as the NPS or Atal Pension Yojana (APY). The NPS allows flexible contributions, choice of asset allocation, and long-term tax benefits, while the APY is designed for low-income self-employed individuals and guarantees fixed pensions between ₹1,000 and ₹5,000 per month after 60. In addition, options like PPF and mutual fund-based retirement plans can be used to diversify savings. For entrepreneurs with variable income, disciplined and automated saving becomes essential to avoid long-term financial vulnerability.

Across these categories, five critical points stand out in the pension landscape of India. First, formal pension security is concentrated in salaried employment, creating unequal access. Second, awareness and financial literacy regarding pension options remain low among part-time workers and freelancers. Third, voluntary participation in government-backed schemes like NPS and APY has not yet reached its full potential, especially in rural and informal sectors. Fourth, long-term tax incentives play a central role in encouraging retirement planning across income groups. Fifth, reliance on personal discipline and informal instruments is disproportionately higher among those without formal employment benefits. These factors illustrate both the strengths and gaps within the current pension system.

The overall pension framework in India highlights the divergence in retirement preparedness among full-time employees, part-time workers, and self-employed individuals. The system has been designed with stronger provisions for those in formal employment, while leaving voluntary participation as the main route for others. Although government initiatives such as NPS and APY attempt to broaden inclusion, differences in income stability, contribution capacity, and access to financial products shape the outcomes for each group. As a result, the pension landscape mirrors the diversity of employment choices, where security is directly influenced by the nature of work and the ability to plan consistently for the future.

In the context of the passage, which factor is described as directly shaping the pension outcomes for different categories of workers in India?