DISASTER AHEAD

It’s going to be really hard for Indian millennials to maintain their lifestyle when they retire

Quartz india
Quartz india

By 2050, India will be home to one of the largest populations of retirees in the world. However, its savings, as well as support from the government or employer pension plans, simply won’t be enough to live on.

This shortfall in retirement savings, i.e., the funds required to cover 70% of pre-retirement income for each person, will increase from $3 trillion in 2015 to $85 trillion in 2050, according to a study by the World Economic Forum (pdf). At 10%, the yearly growth of the gap in India’s retirement savings will be the fastest among the eight countries analysed by the WEF, including China, the US, and the UK. It will also be well above the global average of 5%.

One of the main reasons for this shortfall, the WEF explains, is that a majority of the Indian workforce operates in the informal sector with hardly any access to retirement saving plans. Additionally, the middle class in Asia’s third-largest economy is rapidly expanding. So, as incomes and the quality of life improve, the quantum of money required for retirees will also go up. Besides, unfavourable returns on investment could add to the shortfall.

All this could be catastrophic for India’s growing elderly population. By 2050, 19% of India’s citizens will be above 60 years of age, according to the United Nations Population Division, but only 25% currently have some form of pension cover. Moreover, its pension system has been rated as one of the worst in the world, with the 2015 Melbourne Mercer Global Pension Index ranking India the lowest among 25 countries on retirement savings programmes.

Globally, the retirement savings shortfall could go up to $400 trillion by 2050, the WEF said. Here are the estimations for each of the eight countries surveyed:

The report notes that government-supported pension programs should be expanded to cover more elderly people. Currently, India has employer-managed pension programs that are mandatory, along with an employee provident fund scheme, and the Narendra Modi government is trying to bring some 400 million unorganised sector workers under pension schemes with initiatives such as the Atal Pension Yojana. Clearly, the need for more pension programmes has never been more urgent.

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