India’s demographic landscape is undergoing a transformative shift, presenting significant challenges to the traditional notion of retirement. The country’s growing population, ageing society, and emerging complexities such as expensive healthcare, rising living costs, and changing family dynamics have rendered retirement planning in India a critical concern.

The weaknesses in India’s pension scheme have long been a persistent issue, primarily due to the prevalence of the informal sector and the shift towards nuclear families. A staggering majority of India’s workforce operates in the informal sector, where pension provisions are non-existent. These workers face challenges in accumulating sufficient savings for retirement due to unstable income streams and irregular contributions to pension schemes. Consequently, a vast majority of individuals are left without a structured retirement plan, heightening their vulnerability in old age.

The shift towards nuclear families exacerbates the retirement planning predicament in India. Historically, the joint family system provided a support network for older members, as they could rely on their children for financial and emotional assistance. However, as more families adopt nuclear setups, the burden of retirement planning falls solely on individuals.

Life expectancy

India’s increasing life expectancy poses additional challenges, as individuals now live longer after their working years, requiring sustained financial planning. The issue of longevity risk emerges, referring to the possibility of outliving one’s retirement savings. With longer lifespans, individuals need to plan for an extended period of retirement, necessitating careful financial planning and investment strategies to ensure a sustainable income throughout their retired years. The ageing population in India also places a burden on the country’s social welfare systems, which struggle to accommodate the growing number of retirees.

The rising cost of healthcare is a primary unknown risk in retirement planning. As individuals age, their medical needs increase, leading to significant expenses. Escalating living costs in India, fuelled by rapid urbanisation and inflation, pose another pressing concern. Expenses related to housing, utilities, food, and transportation have surged, placing retirees in the challenging position of managing their limited income against mounting costs.

Addressing inflation, enhancing affordable social rental housing pool are essential steps the government should take. Financial literacy plays a vital role in retirement planning, as many individuals lack the necessary knowledge and skills to make informed financial decisions.

Although India has social security measures in place, such as the National Pension System (NPS) and the Employees’ Provident Fund Organisation (EPFO), their coverage and effectiveness require improvement. The NPS primarily targets formal sector employees and struggles to extend its reach to the informal sector. The EPFO, while serving as a pillar of retirement security, faces limitations in terms of contribution rates and withdrawal flexibility. These factors hinder the development of a robust pension system, contributing to the perception of inadequacy. Bridging the fiscal gap and ensuring adequate pension provisions for all citizens demand proactive policies.

India’s demographics carry significant economic implications in the future. A shrinking working-age population places pressure on economic productivity and growth. With a reduced labour force, the country may encounter challenges in meeting economic targets and sustaining welfare programmes. To mitigate these impacts, India must invest in skill development, promote lifelong learning, and create an enabling environment for active ageing, allowing retirees to continue contributing to the economy in various capacities.

The writer is author, policy researcher and corporate advisor

Related Topics
comment COMMENT NOW