New Delhi, Jan 22: In India, a very small number of private company employees have pensions. According to a recent report released by Crisil, a ratings agency, only 8 percent of employees who retire from the private sector in India are covered by pensions while 92 percent of private employees have no income security.
As per an IndiaSpend report, "India's ageing population is a concern for policy makers and analysed how some states in India have witnessed a fall in fertility rates, leading to a proportionately higher population of the elderly, implying an increasing burden on the working population."
As per the Crisil report, with only 8 percent people having private cover, after the retirement, the aged population in India will be in a crisis, thus, more investments are needed in the private pension sector so that the country's future is secure and burden free.
The Crisil report also says, "Today, just 8% of private-sector retirees in India have pension cover. By 2050, the country's sexagenarian (aged 60 and above) population will rise to 300 million, a three-fold jump. If private sector pension coverage doesn't pick up, the government will need to step in to provide minimum sustenance to India's old population. This could mean a potentially huge fiscal burden."
Pension burden may rise to 4.1% of GDP by 2030: Crisil
The overall cost of social security may jump up to 4.1 per cent of the GDP by 2030 in the absence of adequate private sector coverage as the number of elderly would touch 18 crore by then, says a Crisil report.
According to Crisil, by 2030, if at all the private sector coverage increases to 70 per cent (best case scenario) or 6.3 crore (8 per cent of the total retirees) this will increase the government's pension burden by 120 basis points to 3.4 per cent of GDP from around 2.2 per cent currently, assuming each pensioner gets Rs 2,000 every month.
Even then this will cover only 30 per cent of the total non-government retirees, the report said.
In the worst-case scenario, if private sector coverage stays chronically low at its current level of 8 per cent by 2030, the government will have to formulate a pension scheme to support the entire population of the old.
This will raise the fiscal burden to a high of 4.1 per cent of GDP, assuming a monthly payout of Rs 1,000 per pensioner or half the amount in the best-case scenario, Crisil said in its report.
In either event, the fiscal burden of pension ranging from 3.4 to 4.1 per cent of GDP in 2030 is high. In comparison, the Centre today spends 3-3.4 per cent of GDP on education and just over 1 per cent of GDP on medical and public health, water supply and sanitation, Crisil managing director and chief executive Roopa Kudva said during a teleconference.
According to Crisil, nearly 10 crore elderly will triple to 30 crore by 2050 or every fifth citizen will be a sexagenarian compared to every 12th now. However, the report warns that going by the current pension coverage in the private sector, most of these elderly will not have any social security net unless such a net is not built from now by increasing the pension coverage to the private-sector workforce manifold.
On the positive side, the direct pension burden of the government will come down to 0.7 per cent of GDP by 2030 from 2.2 per cent of GDP currently, said Kudva. Government employees joining the workforce after 2004 are covered under the defined contribution formula of the National Pension System (NPS).
The NPS, which has almost been a non-starter until now, can be popularised by way of increasing awareness and incentivizing the distributors, says the report. Commenting on mutual fund houses like Reliance, which recently got approval to launch its maiden equity-oriented pension scheme giving tax benefits to investors, Kudva said.
We may see a few more players coming in if the government makes investment into the pension schemes to EEE (exempt, exempt, exempt) from the currently existing EET (exempt, exempt, tax) provisions.
(With inputs from agencies)