India’s pension system has a blind spot: those already old

Summary

India’s pension system is getting better at helping people save for retirement. But for older informal workers with little pension income, reverse mortgages could turn home equity into a financial lifeline.

India's pension reform has quietly become one of the most sophisticated in the developing world. The National Pension System (NPS) now runs on shared digital rails that allow the Pension Fund Regulatory and Development Authority (PFRDA) to launch a new product within months. Its recent wave of initiatives, including child accounts, a simplified variant for informal workers and phased withdrawals at retirement, shows a system iterating faster than almost any peer. But there is one group even the best accumulation machine cannot help: those already old.

For a 55-year-old informal worker, compounding has almost nothing to work with. Even if she enrolled tomorrow and saved faithfully, there would be too few years to build a pension worth the name. No payout innovation can manufacture adequacy that the accumulation phase never created. The near-old need a different instrument: not a miracle, but a way to convert what they already own into income.

And most of them do own something substantial: their homes. Eighteen years ago, drawing on the Indian Retirement and Savings Survey 2007, I estimated that tens of millions of informal workers over 50 owned their houses outright. These unencumbered assets were then worth well over ₹17 trillion, or roughly a third of GDP in 2008. Many of these workers are now in retirement, still asset-rich and cash-poor, while the wealth in their walls has only appreciated. A reverse mortgage, which provides monthly income against a home the owner continues to live in, is the natural key to that lock.