Building a Pensioned Society in India

India is experiencing a demographic shift with a growing elderly population. According to the India Ageing Report 2023 By UNFPA-INDIA, the share of the Indian population over the age of 60 years is projected to increase from 10.5% in 2022 to 20.8% in 2050. By the end of this century, the elderly are expected to constitute over 36% of the total population of the country. This demographic change underscores the urgent need for a well-structured pension system. Historically, majority of Indians rely on their children for financial support in old age. However, with modernizing lifestyles and economic pressures, nuclearization of families, smaller families; this traditional safety net is becoming less dependable.

The traditional Indian family structure, once characterized by joint families where multiple generations lived together, is giving way to nuclear families and urban living. This shift is largely driven by increased mobility, access to educational loans, career opportunities both domestic and international, and changing social norms. With fewer children and more geographical distance between family members, the reliance on children for financial security in old age is becoming challenging .

Building a pensioned society aligns with broader social goals of reducing dependence on children for financial support in old age. This shift not only eases the financial burden on younger generations but also fosters a sense of independence and dignity among the elderly. By creating a reliable pension system, India can support a model where individuals are financially self-sufficient, thereby promoting a more equitable distribution of fiscal responsibility across generations. This leads to greater emotional connect between parents and children without the added emotional guilt of financial dependence.

Moreover, changing gender roles means that women, who were traditionally dependent on their family members especially spouses, also need financial security of their own. These changes in family dynamics make it crucial to establish independent pension plans that provide financial stability without relying on family support.

A pension society also needs to focus on its younger members as well. One of the newest features of NPS is the NPS Vatsalya, which will help securing the financial future of children. Through this route, parents / guardians can build a retirement corpus for their children upto the age of eighteen. The NPS Vatsalya account in the name of minor with  the minor being the sole beneficiary, will be operated by the Guardian. By encouraging early investment and providing a structured savings plan, NPS Vatsalya aims to build a robust financial foundation for young individuals.

Inflation is another critical factor influencing the need for a robust pension system. As the cost of living continues to rise, maintaining a comfortable lifestyle post retirement becomes increasingly challenging. Without a reliable pension, retirees may find it difficult to keep up with rising costs including medical, potentially leading to a decline in their quality of life. This is further accentuated by longer life expectations, thus the retirement corpus having to stretch that much longer.

Financial literacy plays a crucial role in building a pensioned society. Understanding the principles of saving and investing early, helps making informed decisions about their financial future. This allows the retirement corpus to benefit from the power of compounding through investment into the capital market and thus generating inflation beating investment returns. Educational programs and resources are being made available to people from an early age, emphasizing the importance of retirement planning as part of their financial well-being.

Individuals who plan and invest early for retirement are better positioned to build a substantial retirement corpus that can counteract the effects of inflation. Pension schemes and retirement funds that are designed to provide returns that outpace inflation through asset classes including equity, ensuring that retirees can maintain their purchasing power over time.

The Indian government has taken several steps to address the pension needs of its citizens including  the National Pension System (NPS) and Atal Pension Yojana (APY). These are regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and are designed to provide financial security to different segments of the population. NPS was initially introduced for the employees of the Government sector and subsequently made available for all Indian citizens including resident Indias, Non-resident Indians (NRIs) and oversees citizens of India (OCIs).

Features of NPS include asset allocation across equity, government securities, corporate debt, and alternative investment funds as per one’s risk appetite, professional fund management, portable across corporates with added tax benefits from investment in the same.

Building a pensioned society in India is not merely a matter of financial prudence but a societal imperative. With changing family structures, rising inflation, and the need for greater financial independence among the elderly, establishing a robust pension system is essential for ensuring the well-being of future generations. By promoting early retirement planning, enhancing government initiatives, and improving financial literacy, India can move towards a more secure and self-reliant future for its elderly population. The journey towards a pensioned society requires collective effort and foresight, but the benefits will be well worth the investment.

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