India will transform gradually from young to a ‘greying’ country and by 2050 every 5th Indian will be in 60s as against every 12th at present. Flagging the demographic transition, a PFRDA-CRISIL report today said it is important that the development of the under-penetrated pension market in India be initiated now, when the situation is ripe. “Demographically, India will transition slowly from a ‘young’ to a ‘greying’ country, where persons above the age of 60 would increase from 8.9 per cent of the population now to 19.4 per cent by 2050,” said PFRDA Chairman Hemant G Contractor in the report, ‘Financial security for India’s elderly – The imperatives’. As per the report, the population of people above 80 is likely to increase from 0.9 per cent to 2.8 per cent by 2050. “Continuously declining inter-generational support within families makes it imperative to have a well-developed, self- sustaining pension system in the country,” the report said.
Almost 90 per cent of the population was below the age of 60 years and the working age population proportion stood at 44 per cent in 2015. Contractor said the promotion and development of a pension system is also vital to the growth of the Indian economy as it serves the twin objectives of providing income security to a vast multitude of the ageing population, and garnering long-term funds for critical, growth-driving sectors of the economy as also the capital market. “A developed pension sector not only reduces the fiscal burden on the exchequer, it also has a stabilising effect on the economy by promoting long-term savings combined with long-term investments,” he said. According to him, the pursuit of affordable, adequate, efficient and sustainable pension system will involve a great deal of inter-ministerial, inter-state, inter-regional and inter-institutional decisions and co-ordination. The report said the government should focus on the financial awareness of pension products in the country.
“Having personal finance and retirement planning a part of the formal education curriculum can aid in achieving the overall objective of financial literacy,” it said and made a case for sufficient incentivisation of intermediaries to increase penetration. India is a grossly under-penetrated financial market in terms of retail participation. The most that investors prefer investing in is bank fixed deposits (FDs), which account for more than 44 per cent of the financial savings in the market. Provident and pension funds form just 14 per cent of the savings and are primarily fed by the organised section of the society. As per the report, increasing the penetration of pension products via voluntary pension schemes is the biggest hurdle the Indian pension industry faces today, especially given the gargantuan size of the unorganised sector.
Citing a case study of government’s flagship Atal Pension Yojna, the report said of the 47 lakh subscribers, almost 49 per cent have subscribed for Rs 1,000 pension, and about 37 per cent for Rs 5,000, the top bracket. “Though the pension amounts seem low, it can be inferred that people are not able to afford even these contributions,” the report said.