New study calls for State-specific pension reforms in Kerala rooted in an inclusive framework and fiscal sustainability

Sustainable, State-specific pension reforms have become imperative for Kerala, given the strain on its finances arising from the growing pension commitment and the rising share of elderly population, according to a new research paper.

Among major Indian States, civil and social security pension systems have become “particularly critical” in Kerala’s case, owing to its distinct demographic trajectory and ideological stance on pension reform rooted in the Kerala Development Model, notes Public pensions in an ageing state: Is sustainability at risk?, a paper by P.S. Renjith, Assistant Professor, and Ashkar K. of the Gulati Institute of Finance and Taxation (GIFT), published in the latest issue of the GIFT journal Kerala Economy.

Moving forward, Kerala will need to look at “better targeting of beneficiaries, integration of contributory and welfare schemes, enhanced delivery efficiency, and robust revenue mobilisation strategies,” the paper observed.

Kerala grapples with one of the highest pension burdens, particularly from statutory pension liabilities, among Indian states. The GIFT paper observed that Kerala’s spending on pensions as a share of its total revenue expenditure stood at 17.3% in 2023-24, 16.4% in 2024-25 (revised estimates). The budget estimates for 2025-26 have put it 16.9%.

According to the State government, close to 60 lakh people benefit from the monthly social security and welfare fund board pension payments of ₹1,600.

The GIFT paper, citing the Census 2011 and the 2019 Report of the Technical Group on Population Projections, observed that Kerala’s elderly population share is expected to rise sharply to nearly 24% by 2031. This would present pressing social and fiscal challenges.

“As the working-age population contracts, the demand for stable old-age income, healthcare, and elderly-centric services is set to rise sharply,” the paper noted.

Kerala’s inclusive approach to pensions, whilst a progressive social model, faces mounting fiscal pressure due to rapid population ageing, increasing life expectancy and an already high pension-to-revenue expenditure ratio, the paper said.

“Moving forward, Kerala must strike a careful balance between its inclusive pension framework and fiscal sustainability,” it said.