The key to solving India's pension problem lies not in pensions themselves but reducing the need for pension. That sounds counter-intuitive, but it's really true. Last week, while participating in a FICCI conference called 'India: Moving Towards a Pensioned Society', I was stuck by how deep India's old age pension hole is, how inadequate the current situation is, and yet how obvious are a whole range of measures that could improve the situation.
We all know the story on pensions. The amount of pension coverage in India is tiny. The population is growing older, both because families have fewer children and because people live longer. Familial support structures are getting weaker. All of this has combined to create a pension time-bomb. Some three decades from now, we'll have a much larger proportion of the population that is too old to work but has no money to support itself. Unless there are some big changes in the way this whole business of pensions works, we are looking at a disaster. There will be at least 30 crore old people by that time, some of them as old as 80 or 90 years old, and many of them will be destitute despite having earned as long as they could.
Is the NPS the solution? It could have been, had there been some way to get a huge number of people to participate in it. The NPS is a success only in the sense that it has succeeded in eliminating the unlimited nature of the government's future pension liabilities. As far as providing coverage for the tens of crores in the unorganised sector, it's getting nowhere.
The effort that the Modi Government has made is on a low-end variation of NPS called the Atal Pension Yojna. Under this scheme, there are five plans that will eventually yield a pension of Rs 1000 a month to Rs 5000 a month. Monthly contributions range from Rs 42 for an 18 year old starting on the Rs 1000 plan and to Rs 1318 a month for a 39 year old starting on the Rs 5000 a year plan. Sounds good? As an Indian living in urban prosperity, you won't know what to say and nor do I. On the one hand, Rs 1000, with 40 years inflation (at a modest six per cent) added on it, will have the purchasing power that Rs 90 has today. Even after 20 years, it will be worth just Rs 300. Even Rs 5000, with 20 years' inflation is an income of about Rs 1500 a month. And that's just at the beginning of retirement! Add another 20 years of old age and we're down to a monthly pension that will not buy a single days' food for one person even in the lowest cost parts of India.
As I said in the beginning, the most important thing is for people to need less pension. The two biggest reasons that the pension situation looks so hopeless is that we expect high inflation and that we expect public health services to be dysfunctional. Even during their working life, the limited saving capacity of people are a direct result of these two factors, with a few more like a dysfunctional public education system added.
There are other, smaller issues. For example, the NPS (and the Atal Yojna) are utterly rigid on the fact that at the age of 60, everyone must stop working and contributing and start drawing their pension. This is utterly foolish, specially in the context of unorganised sector. People work till they can. Earning and contributing to pension is something many people can do well into their sixties and even later.
If India, as a government, somehow delivers on these issues and keeps delivering over a long period of time (basically, forever), then and only then will the pension problem be solved. Does that sound like a tall order? I hope it isn't.
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