Does the Atal Pension Yojana Use ‘Nudge Theory’ to Drive Up Enrolments? |
The auto-enrolment feature of India’s Atal Pension Yojana is critically examined. The application of “nudge theory” is analysed in APY in comparison with successful pension schemes globally and three key divergences are identified: misaligned incentives, reliance on paper-based rather than digital enrolment, and cumbersome opt-out procedures. The article argues that APY’s auto-enrolment mechanism substantially departs from established best practices in behavioural economics and may result in non-consensual enrolment and retention. It concludes that the scheme reflects a misapplication of nudge theory and underscores the need to reassess its enrolment and exit design to ensure ethical implementation and enhanced pension coverage in India.
India remains far from achieving the goal of “Pension for All.” As of May 2024, only about 5% of the country’s population was covered by pension schemes (Mohanty 2024). At the same time, the pension sector has expanded rapidly in recent years. A 2022 working paper of the Pension Fund Regulatory and Development Authority (PFRDA) shows that the number of pension subscribers increased more than threefold, from about 15 million in March 2017 to over 52 million by March 2022. This expansion has been largely driven by the Atal Pension Yojana (APY), which accounted for nearly 78% of total pension subscribers by March 2022 (Mohanty 2022).
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