Pension in the economy refers to a regular payment made to individuals, typically retired government employees, private sector workers, or senior citizens, as a form of post-employment financial security. Pensions are either contributory (funded by employee and/or employer contributions during the working period, such as the Employees’ Pension Scheme (EPS) or National Pension System (NPS)) or non-contributory (financed entirely by the government, especially for civil servants or under social welfare schemes).

Pensions play a critical role in ensuring economic and social security for the aging population. As life expectancy increases, a well-structured pension system helps maintain the dignity and independence of elderly individuals, reducing their dependence on families or social welfare. In economic terms, pensions contribute to consumption stability, as retirees continue to spend, supporting demand in the economy. They also encourage long-term savings and investment, especially in contributory systems like the NPS. However, rising pension liabilities, especially under unfunded government schemes, pose fiscal challenges, consuming a significant portion of revenue expenditure. This highlights the need for pension reforms and sustainable systems. In the broader context of inclusive growth and demographic transition, pensions are essential for building a social safety net and fostering intergenerational equity in economic planning.