Overall, the increase in retirement age will have a positive impact on the economy and on the growing number of seniors in the country.
Globally, the increase in senior populations and rising life expectancy have ignited policy level discussions to identify sustainable solutions to tackle the growing financial stress on social security systems. As global access to healthcare facilities improves and becomes more affordable in low-income countries, life expectancy might increase even further. While this will be largely seen as the success of neo-liberal economic policies and social welfare schemes, it is likely to bring forth a unique set of challenges for governments.
Senior citizens will grow more dependent on the state for pension pay-outs to meet their post-retirement living expenses. We have already started seeing such trends in countries where seniors constitute a significant percentage of the total population. India, for example, spent roughly Rs 1.66 lakh crores for pension payments in 2019-20, which was more than its salary expenditure in the same fiscal year. Improvements in life expectancy accelerate the funding requirements of pension plans. For example, if a retiree lives one extra year in retirement, governments will have to find additional resources to pay the pension and other related benefits. This, with the increasingly growing senior population, will put more pressure on government revenues and leave many seniors deprived of their pension benefits.
A major global response to this potentially precarious scenario has been to progressively increase the retirement age. This will not only help governments in keeping the pension system solvent but will also ensure continued engagement and participation of seniors in the workforce. As India prepares itself for major demographic shifts, it is critical to put in place concrete policy measures to keep the ageing, but fit to work, populations meaningfully engaged with opportunities for both financial independence and an active lifestyle. The Draft National Policy for Senior Citizens 2020, which aims to create a robust ecosystem for seniors, should, therefore, initiate stakeholder discussions to seriously consider increasing the retirement age in a phased manner and strengthen its efforts to safeguard the interests of seniors.
Why should we increase the retirement age?
The current retirement age in India is 60 years. Globally, especially in the west, considerations of revising the retirement age have made significant strides in the recent past. The UK, for example, is already planning to increase the retirement age from 65 to 68 years over the next two decades.
In India, it was the Economic Survey Report 2018-19 that first floated the idea of revising the retirement age, given the likely slowdown in its population growth, increase in the senior population, and growing life expectancy. Increasing the retirement age in a gradual manner will play a key role in ensuring the viability of pension systems and in reducing the financial burden on the national exchequer. Additionally, as the Economic Survey argues, it will increase female labour force participation in the older age groups.
Further, an increase in retirement age will greatly support skilled and qualified seniors to remain active, while continuing to contribute to national growth. Governments, therefore, should offer continued support to people in their 60s and 70s by providing them with alternate career options such as teaching in schools, consulting/advisory roles with government/private companies, etc. to keep them highly engaged and productive. Japan, for example, introduced a voluntary re-employment system for retirees who can and at will, join back the workforce as part-time employees with different work hours and wages. This will allow especially those willing to re-enter the workforce after retirement to invest in necessary skill upgradation and lead a healthier lifestyle.
Currently, at India’s central universities, the retirement age is 65 or 70 years. Raising the retirement age for those in similar professions will help the younger generations gain from the seniors’ experience and wisdom. More importantly, it will save India millions of dollars in pension pay-outs, especially at a time when the country is staring at growing economic uncertainties. The draft national policy for seniors should treat this as a critical need and, therefore, make relevant policy interventions that provide seniors adequate opportunities to work beyond the current age of retirement.
Economic implication of increasing retirement age
The decision to increase the retirement age, despite its obvious economic benefits, has not received much support from the general public and employee associations. A major reason cited for this is the perception that it will block the entry of young people into the workforce. However, this is untrue and is based on the ‘lump of labour fallacy’ assumption that says the quantity of labour required in an economy is already fixed. Labour demand, on the other hand, depends on the size of the economy, demand-supply dynamics, manufacturing activities, and overall market conditions that drive financial systems.
Moreover, with more money in the hands of the workforce, there will be more spending, which will lead to the overall expansion of the economy, creation of jobs, and a rise in demand for goods and services. This is even more relevant in India, which is a consumption-led economy. However, it is true that at organisations, where the number of job vacancies is fixed, increasing the retirement age would likely restrict the entry of younger employees. But overall, the increase in retirement age will have a positive impact on the economy and on the growing number of seniors in the country.
As India looks to combat an impending slowdown in its demographic growth and a steady increase in its senior population, it must adopt a nuanced strategy to keep the ageing workforce engaged without endangering opportunities for the youth. Overall, an increase in the retirement age will lead to higher productivity and a healthier economy. The Draft National Policy for Senior Citizens 2020 assumes greater significance in this context and should, therefore, lead the discussions on increasing the retirement age in a systematic manner. A progressive atmosphere where seniors not only have jobs, but also adequate savings in their silver years, will lay the foundations of a healthier and self-reliant India.
(By Tara Singh Vachani, Executive Chairman at Antara, a Max Group Company)