With Kerala set to have nearly one in four residents aged above 60 by 2031—the highest proportion in India—its inclusive but fiscally intensive pension system faces unprecedented stress. At the same time, the Union Government’s contribution has been minimal, accounting for less than two percent.
Published Sep 13, 2025 | 9:00 AM ⚊ Updated Sep 13, 2025 | 9:00 AM
Social security pensions. Representational Image. (iStock)
Synopsis: Kerala, home to India’s fastest-ageing population, spends over ₹11,000 crore annually on social security pensions, covering more than 60 lakh beneficiaries, with women forming nearly two-thirds. Central government contributions remain minimal, leaving the state to bear the bulk of pension costs, even as longevity rises and fiscal pressures intensify. A new study warns that the state’s near-universal, welfare-oriented pension system needs urgent reforms to ensure long-term fiscal sustainability.
In Kerala, which has the country’s fastest ageing population and one of the widest social security nets, pensions are both a badge of progress and growing a burden on the exchequer.
The state currently runs the largest social security pension programme in the country. Across 40 categories, Kerala has a total of 60,01,810 pension beneficiaries, according to Finance Department data from February 2025, with an estimated monthly pension of ₹1,600 each.
This includes around 11 lakh members of various welfare fund boards.
The government spends over ₹11,000 crore annually on pensions. In the past 42 months alone, it has disbursed ₹33,210.68 crore. By comparison, the first Pinarayi Vijayan government (2016–2021) disbursed ₹35,089.19 crore over its full term.
The current administration estimates that its five-year spend will cross ₹50,000 crore, a historic high for the state.
The number of social security pensioners, excluding welfare board pensioners, has climbed steeply – from 34 lakh in 2015–16 to 50.4 lakh by October 2024, with women making up 63 percent of beneficiaries, according to the Economic Review 2024, tabled in February 2025.
Of these beneficiaries:
Another 83,892 unmarried women also receive monthly support. Under the Old Age Pension Scheme, 28.8 lakh low-income senior citizens are covered. The state also integrates pension distribution with health, palliative, and home care support for the elderly.
But as longevity rises and central support remains meagre, the big question is whether the state can maintain near-universal coverage without sinking deeper into fiscal strain.
While Kerala spends heavily on pensions, the Union Government’s contribution is minimal.
According to Finance Department officials, central assistance accounts for just 2 percent of the state’s total pension bill. For instance, under the Indira Gandhi National Old Age Pension Scheme, the Centre contributes ₹200 per month for those aged 60–79 and ₹500 for those above 80. The state bears the bulk of the cost, adding ₹1,400 and ₹1,100 respectively.
Similarly, in the Indira Gandhi National Disability Pension Scheme and the Indira Gandhi Widow Pension Scheme, the Centre contributes just ₹300, with the state covering the remaining ₹1,300. Schemes such as the farmers’ pension and unmarried women’s pension receive no central contribution at all.
In his 2025–26 Budget speech, Kerala Finance Minister KN Balagopal highlighted what he called the “tightening grip” of the Union Government on the state’s finances, pointing to a reduced divisible pool and curtailed borrowing limits as reasons for delays in pension arrear disbursements.
Despite these hurdles, the minister announced that the state will continue with its service pension and social security pension schemes, with arrears settling in 2025–26 itself.
The Budget speech was clear in tone: Kerala will continue to prioritise welfare despite fiscal pressures.
But as an official of the Finance Department put it, it’s not just about fiscal pressures but long term sustainability.
“With nearly 35 lakh beneficiaries and close to 17 percent of its revenue expenditure flowing into pensions, the state has built one of the most expansive elderly welfare nets in India,” the official said.
“But as Kerala races ahead in demographic ageing—projected to have one in five people above 60 by 2031—the very inclusivity of its pension framework is raising tough questions of fiscal sustainability.”
With Kerala set to have nearly one in four residents aged above 60 by 2031—the highest proportion in India—its inclusive but fiscally intensive pension system faces unprecedented stress.
A recent study by the Gulati Institute of Finance and Taxation (GIFT), Thiruvananthapuram, an autonomous institute of the Government of Kerala, warns that while Kerala’s demographic achievements reflect human development, they also threaten the long-term sustainability of its pension architecture.
Rising longevity, a shrinking workforce, and mounting fiscal pressures demand urgent, calibrated reforms that can protect equity without undermining efficiency. For Kerala, the challenge is no longer just about securing old age, but about reimagining a welfare framework that can withstand the fiscal realities of an ageing society.
The study underscores Kerala’s unique but precarious position in India’s evolving pension landscape. Unlike many other states that moved early towards contributory systems like the National Pension System (NPS) and the Atal Pension Yojana (APY), Kerala continues to rely heavily on state-funded, welfare-oriented models.
As of 2023, the state had 7.42 lakh NPS subscribers, a mid-range figure nationally, but just 1.43 lakh under the APY – far below states like Uttar Pradesh or Bihar.
This muted uptake reflects both Kerala’s ideological resistance to market-based pensions and its historical emphasis on universal welfare coverage.
Currently, almost all social security pensions—including those under central schemes like IGNOAPS, Kerala’s Agricultural Labour Pension Scheme, and a network of 44 Welfare Boards—are uniformly set at ₹1,600 per month.
Nearly 30 lakh elderly residents, or about eight in ten older adults, receive such pensions, making Kerala’s coverage near-universal. However, the aforementioned study highlighted that this social commitment comes at a steep fiscal cost.
Pension expenditure accounts for around 16–17 percent of Kerala’s total revenue spending, the third highest among Indian states after Himachal Pradesh and Assam, and well above the national average. Importantly, the study notes, this figure excludes social security pensions, meaning the real burden is substantially higher.
Kerala’s civil pension spending has risen from about 11–13 percent of revenue expenditure in the 1990s to consistently between 15 percent and 20 percent in recent decades, driven by demographic ageing and increasing life expectancy.
With statutory obligations from the Old Pension Scheme still dominating and the state’s relatively late NPS adoption in 2013 delaying fiscal relief, pension outlays now severely constrain Kerala’s fiscal space for capital investment and new welfare initiatives.
The study further points out that although Kerala adopted the National Pension System (NPS) in 2013, it continues to finance legacy obligations under the Old Pension Scheme (OPS), creating a dual strain on finances. This overlap has sharply increased pension expenditure, delaying fiscal relief.
However, the study notes that once NPS-covered employees begin to retire, the shift will gradually stabilise civil pension liabilities and support fiscal consolidation.
On the social security front, Kerala’s efforts are further complicated by the minimal financial support it receives from the Union Government, leaving the state to shoulder much of the cost.
The study suggests that Kerala’s future strategy must balance inclusivity with sustainability by ensuring better targeting of beneficiaries, integrating contributory and welfare pensions, improving delivery efficiency, and mobilising additional revenue to maintain its welfare commitments without undermining fiscal stability.
The real test for the state is sustaining this welfare model without eroding financial stability.
(Edited by Dese Gowda)
