CS Satish P. Bhattu
M.Sc.(Chem.) LL.M. FCS
Certified CSR Professional
Associate at JAPS& Associates LLP
For many, retirement is thankfully no longer a short period tacked on to the end of our life. It can be a long and very fulfilling part of a person’s life. But with that, our needs at 65 can be very different from our needs at 75 or 85, with very different financial implications.
The research was carried out online in the many countries including India, Australia, Argentina, Canada, China, UK and USA. It revealed that only 19% of working age people are saving for future nursing or care home fees. This is despite half of (51%) respondents claiming to be concerned about affording residential and medical care.
Meanwhile, the report found that over half of working-age people (56%) are living on a day-to-day basis financially, while a further 53% only save for short-term goals. Almost half (45%) also admit they prefer spending on enjoying today rather than saving for tomorrow.
The lack of saving may also be linked to many people not considering their older years as RETIREMENT at all, with over two-thirds of working-age people (69%) expecting to continue working to some extent and more than half (54%) hoping to start a business or new venture.
When it comes to knowing the money they will need in retirement, almost two-thirds (65%) of working-age respondents said they were aware of the cost of typical residential home fees. Also, the report revealed that this is leading a generally positive view of retirement across the globe.
Most working-age people are looking forward to greater freedom away from their nine-to-five jobs (76%), taking up new hobbies and interests (72%) and getting fit (68%).
The latest projections by the United Nations suggest that the world’s population could grow to around 8.5 billion in 2030 and 9.7 billion in 2050; it is projected to reach a peak of around 10.4 billion people during the 2080s and to remain at that level until 2100. The world’s population is projected to reach 8 billion on 15 November 2022, and India is projected to surpass China as the world’s most populous country in 2023.
The population of older persons is significantly increasing both in numbers and as a share of the total. The population above age 65 years is growing more rapidly than the population below that age. As a result, the share of global population at age 65 and above, is projected to rise from 10 per cent in 2022 to 16 per cent in 2050. At that point, it is expected that the number of persons aged 65 years or over worldwide will be more than twice the number of children under age 5 and about the same as the number under age 12.
Countries with ageing populations should take steps to adapt public programmes to the growing numbers of older persons, including by establishing universal health care and long-term care systems and by improving the sustainability of social security and pension system.
Indian Scenario
Only a third in India are regularly saving for their retirement while just 33% of working-age respondents globally are putting anything aside for their later life.
In India, till the introduction of Atal Pension Yojana (APY) in 2015, there was no structured pension scheme for the unorganized informal sector in India.
The lack of saving is linked to low knowledge of how much money is needed in retirement as well as many prioritising their immediate financial situation over planning for their older years, according to HSBC’s the ‘Future of Retirement: Bridging the Gap’ report.
The framework of pension system in vogue in India can be broadly analysed in three broad constituents:
i)Non-contributory basic social pension financed exclusively by the government for its employees (Govt. servants for example) EPFO, provident funds and postretirement Pensions;
ii)Occupational contributory pension schemes which could either be voluntary or mandatory. It could be a) defined benefit (DB) plan or defined contribution (DC) as in PSUs and other corporate organisations for example; and
iii)Voluntary fully funded personal pension plan, in the unorganised sector and individual citizens for example.
While National Pension Scheme (NPS) is mandatory for government employees recruited after 2004 it is not so for the private corporate sector. The government sector has eventually completely switched to NPS, the organized nongovernment sector is still predominantly on provident fund system of the EPFO.
Anyone can open an NPS account today in the voluntary contributory scheme as mentioned in category (iii) mentioned above.
As of today, one’s NPS account is a unique account and is portable. One could be in and out of employment, could be with different employers at different times, still the same NPS account can be continued once opened. The moot point is that NPS is a highly flexible scheme without entry barrier as one could open an NPS account with a contribution of just Rs. 500.
As it stands today, NPS is managed commercially by professional fund managers. The value of the pension corpus is marked-to-market and accordingly the rate of return is market determined. Hence, it is subject to variation on a daily basis. The subscriber is aware of the value of his/her portfolio on a daily basis, as investment is expressed in UNITs and net asset value (NAV) of units is declared on a daily basis.
In these choices while the risk attributes are clearly pre-analysed from a pensioner’s perspective, one needs considerable financial knowledge to make an appropriate choice. There is always risk-return trade off; risk appetite matters too from long run rewards point of view. Ideally, an equity-oriented scheme could be more suitable for younger investors. Conversely, a debt-oriented scheme could be suitable for older investors, considering that investors are allowed to join any time till their age of 70 year.
The future expansion in NPS is expected to emanate from the private sector – both the salaried and self-employed. Steps at enhanced pension-literacy, both of the subscribers and the intermediaries, coupled with a nudge from the regulator and the Government along with encouragement to young-adults to join a pension scheme early would accelerate our movement towards a pension-society.
Conclusion
It is evident from the results of the employer pension plans survey, that all stakeholders: the government, employers and employees have a role to play in fostering a conducive pension environment in India. The government needs to consider higher tax incentives, consistent tax treatment of various pension plans and transparency in regulations to augment pension coverage in India. Employers not only need to give a pension platform to their employees, but also need to educate them on the various pension plans and their respective benefits. Employees need to outline their retirement objectives and choose pension plans that will help them build a terminal corpus, which will realise these goals.
References :
1. https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/undesa_ pd_2022_wpp_key-messages.pdf