Currently wages, salaries and pensions of government employees are a huge drain on the exchequer. However, with longevity increasing, it is pension payouts that have been growing by leaps and bounds.
In such a scenario, if the retirement age is lowered, the pension burden is bound to increase. Retirement benefits are estimated to increase by Rs 1,600 crore.
So, while the salary component going into the future will decline (provided the government does not recruit to fill these vacancies), there will be an immediate increase in pension payout.
The government will, therefore, have to take a call. In labour scarce, developed economies with aging populations, the retirement age has been moving up.
The reason is that there are fewer people in the working age-groups who can support retirees. Particularly since most pensions are on a pay-as-you-go basis with benefits, rather than contributions, defined.
That argument doesnt hold in labour surplus economies like India. So there can be a case for retirement ages dropping. Except that the absence of social safety nets does pose a very real problem for retirees.
Hence, any move to lower the retirement age must be accompanied by a concerted effort to strengthen the social security net. That applies even more to non-government employees, the overwhelming majority of whom dont even have the luxury of a pension to tide them through post-retirement.
Equally important is civil service reform. All appointments should be contractual, permitting lateral entry at various levels and vertical mobility (through contract renewal) subject to evaluation.
Absence of secure tenure will facilitate reform of retirement benefits, with clean gratuity and pension components, the latter linked to individual appetite for risk.
But it is doubtful that the UPA will have the stomach for substantive reform. Instead, ad hoc decisions will be taken, perhaps with the intention of getting specific 59-year-olds out of the way.