If you work in a private sector, it is less likely that you get pension or similar retirement benefits from your employer. As mentioned by Crisil in one of its reports, only about 8% of total private sector employees derive pension benefits from their employer at present. Unless, private sector employers increase the coverage of pension benefits to their employees, burden on the Government to fund the pension bill may climb up significantly in future.

This is how….

As per the report published by Crisil, which has sourced demographic data from the United Nations’ (UN), older population in India may increase by about 80% by 2050. It estimates that, India will have nearly 18 crore people with over 60 years of age by 2050. Although at present, India enjoys benefits of favourable demographics, it would become crucial to see how the country protects its social security system as its population gets comparatively older in decades to come. As reported by Crisil, the Government is footing a pension bill which is as high as about 2.2% of GDP at present. The report, goes on saying that, if private sector proves unable to increase coverage of pension benefits to about 70% of the labour force, the outgo of the Government may nearly double as a percentage of GDP from current levels to 4.1% by 2030.

Can this situation be averted?

Crisil has suggested a few precautionary measures to lessen the impact of likely rise in the pension bill of the Government over next few decades. Following are the suggestions;
 

• The Government should formalise the jobs
• Containing inflation to promote savings
• Providing tax incentives to National Pension Scheme by changing its structure from EET (exempt-exempt-tax) to EEE (exempt-exempt-exempt), to make it more attractive
   

PersonalFN is of the view that, everyone talks about India’s demographic advantage, but fails to recognise that this young population will age in time to come. Also for reasons such as education and high cost of living, many families are opting for one child. So, even the argument of demographic advantage should be revisited.

Having said this, PersonalFN is of the view that, it is important for you to build your retirement kitty when you are working rather than depending on the pension benefits derived from various Government-supported or funded schemes. While you invest for building corpus for your retirement, you should follow personalised asset allocation, created carefully after giving due consideration to various factors such as your present financial circumstances, your risk tolerance and years remaining for your retirement. You should also consider if you are expecting to raise your standard of living in future. Higher standard of living would require you to spare more money for your post-retirement years. Also, you should opt for sufficient health cover as you would save a lot of healthcare cost, which otherwise would erode your retirement kitty.

Since rising pension bill can negatively affect state of public finance and would eat into Government funds which otherwise could have deployed to developmental projects which serve in nation’s interest. Retirement remains the topmost important financial goal, so you shouldn’t ignore it.

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