Will a higher retirement age change the game?

The Survey 2019 has suggested that the government should increase the retirement age from the current 60 years. Although the survey did not say what the new threshold should be, it refers to pensionable age reforms being undertaken in Germany, USA, UK, Australia, China and Japan that are gradually increasing their retirement age; in the case of Japan it is moving from around 66 years to nearly 70 years. These countries, however, have a dwindling young population.

On the face of it, the survey points to a higher pension bill for the Centre with a higher proportion of the population ageing over the next two decades. By the end of next decade, India will overtake China as the world’s most populous country.

At the same time the proportion of people above 60 years of age will also increase. With an increasing life expectancy due to better health facilities, the survey said that the retirement age should also be increased. It estimates that the proportion of population above 60 years will inch up to 16 per cent of India’s total population (1.51 billion) by 2041.

“From a personal finance point of view, you will have a longer time to save for a retirement corpus,” said Rohit Shah, a financial planner and founder and CEO of Mumbai-based Getting You Rich. “This means that we will have to recalibrate the retirement plan and the savings that you need will be lower.” PV Subramanyam, a financial advisor of Subramoney.com, said, “the Centre could tweak the income tax slabs to exempt a higher threshold of income of those over 60 years or give a predetermined standard deduction to those above a certain age threshold.”

Limited impact

The Survey said when the eventual move to a higher retirement age does come to pass, the Centre should announce the change a decade in advance. This would help the workforce to be prepared for the shift, and give them more time to plan for their pension needs.

“This would only impact a small proportion of the workforce though,” said Deepesh Raghaw of PersonalFinancePlan, an investment advisor. “The government is not a huge employment generator nowadays, so the impact of this move will be limited only to government employees. Private companies have their own rules for their employees with respect to retirement age.”

However, financial advisors caution that the impact of such a move on the Centre’s finances itself might be limited considering that it has moved to a defined contribution plan under the National Pension System (NPS) for all employees who have joined from 2004.

Here the employees contribute to their retirement corpus. Many State governments have also moved their employees to the NPS. How far will this move help shore up government finances is unclear as the Survey didn’t give any estimates.