Date: 07/01/2023

Relevance: GS-1: Indian Society— Salient features of Indian Society, Diversity of India.

Relevance: GS-2: Welfare of vulnerable sections of the population by the Centre and States; mechanisms, laws, institutions constituted for the protection and betterment of these vulnerable sections.

Key Phrases: Retirement age in India, Fiscal Burden of pension and social security schemes, ‘Pensions at a Glance 2021’ report, Fiscal implications of retirement age, Voluntary Retirement Scheme (VRS)

Context:

• In recent times, voices have been raised by various governments and stakeholders to increase the retirement age of the government employees in India.
• The EPFO chief requested an increase in pension age to reduce the pressure of pension pay-outs.
• Quick actions on this front would not only make India lockstep with other nations, there are many advantages from a fiscal standpoint as well.

Background: India lies in the bottom of the pile in old-age social security coverage

• The retirement age in India has languished around 60 for over three decades now; among the lowest globally.
• The retirement age for central government employees was last revised in May 1998, when it was moved up from 58 to 60 years.
• Even in the private sector it lies in the 58 to 62 year-band and only a small segment with shortage of personnel such as doctors and scientific officers has age around 60 years.
• According to the World Bank, the life expectancy in India in 1998 was 61.7 years and improved to 70.1 by 2020 and even higher for states such as Kerala, Tamil Nadu.

Other countries’ experience

• According to OECD’s ‘Pensions at a Glance 2021’ report, the global average retirement age for a man working from the age of 22 was 64.2 years in 2020.
• This is expected to increase to 66.1 years by 2064 for people entering the workforce after 2020.
• The remaining life expectancy of men at age 65 is projected to increase on average from 18.1 to 22.5 years.
• The report notes that the normal retirement age of men will increase in 20 out of 38 OECD countries with the highest increase expected in Turkey, from 52 to 65 years.
• Other countries contemplating steep increases in retirement ages are Denmark, from 65.5 to 74 years, Estonia, from 63.8 to 71 years and Italy, from 62 to 71 years.

Need and benefits of increasing the retirement age in India

• Increased longevity
  • The improvement in healthcare facilities, purchasing power and better quality of life increasing longevity therefore there is a strong case for increasing the retirement age in India.
• Reduced social security responsibilities
  • The social security burden on organizations and the government will go down by increasing the retirement age in India.
  • This increase should be gradual, over a period of perhaps 5 years, from 60 to 65.
  • More working years will not only increase the contributions but will also decrease the pension outgo over the longer term.
• Working age population and demographic transition
  • The Economic Survey 2018-19 suggested that all major States are projected to witness a decline in the share of young population and an increase in the share of elderly population over the next two decades.
  • It means less than one-fourth of the population under the age of 20 but about one-fifth or more of the population over the age of 59 by 2041.
  • This not only reduces the working population but also the burden of pension payouts are set to move higher in the coming decades.
• Fiscal implications in challenging times
  • Pension expenditure accounting for around 5 % of the Centre’s total expenditure and over 10 % of the expenditure of many States, the fiscal situation will receive a much-needed breather if the retirement age is increased soon.
  • This will come in handy, especially in the next couple of years, when the fiscal situation is going to be challenging.
• Increase in income tax revenue
  • Another benefit for the exchequer is that income tax revenue will receive a boost through increasing retirement age since the older employees typically draw a higher salary and hence pay more tax.

Issues with the increase in retirement age

• New job generation will suffer
  • Delaying retirement age will impact the youth as there are fewer jobs for them and employment opportunities will be reduced.
  • It will be a hard situation to be in when India is entering into its peak of demographic dividend.
• Promotions and other administrative challenges
  • Reduction in retirement age will be an administrative issue which will be amplified by the issues related with promotion, seniority and so on in the public sector.
• Pushback from multiple stakeholders
  • Many employee unions may oppose the move citing the only way to generate jobs is retirement of older people along with those who are thinking of getting retired at the age of 60.
  • It will be a herculean task to take the employees into confidence.

VRS and hybrid methods are the way forward

• Reducing dependence on older and obsolete jobs
  • The transition is unlikely to be smooth with many under the misconception that the only way to make jobs available for the youth is by asking older employees to vacate their positions.
  • But dependence on these jobs needs to move down in the coming years as the technology companies and start-ups have led to a vibrant digital economy making many jobs obsolete.
• Reskilling and vocational training of youth
  • As technology driven unemployment has been a big challenge but it has provided multiple employment options for the educated youth in the country.
  • Therefore, reskilling and vocational training should be focused as the skilled youth may fetch them good jobs in new tech companies.
• Voluntary Retirement Scheme (VRS)
  • Provide an option to the employees around the current retirement age to either take voluntary retirement or to continue working.
  • Many organizations are already providing VRS options for employees beyond a certain age.
  • Such options ensure that extension of working years does not prove burdensome to those who do not want it.
• Re-employing at different jobs
  • Some jobs where physical activity is needed, may not be suitable for the aged and companies in such segments can consider re-employing those beyond a certain age, with a different job profile.

Conclusion

• In India all stakeholders including the citizens and the policy makers appear quite insouciant, resulting in India featuring near the bottom of the pile in old-age social security coverage.
• The benefits that older employees bring with more experience, commitment and loyalty could prove beneficial to most organizations eventually, thus there needs to be serious deliberation on this issue.

Source: The Hindu

Mains Question:

Q. An increased retirement age will not only put India on equal footing with other nations it will also ensure low fiscal burden for social security. Evaluate.(250 words)