Context
- In recent times, various governments and stakeholders have advocated for raising the retirement age for government employees in India.
- The EPFO chief requested that the pension age be raised in order to relieve the pressure on pension payouts.
- Quick action on this front would not only bring India in line with other countries, but there would also be numerous fiscal benefits.
Relevance
GS Paper-1: Indian Society— Salient features of Indian Society, Diversity of India.
GS Paper-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
Mains Question
An increased retirement age will not only put India on par with other countries, but will also result in a lower fiscal burden for social security. Evaluate. (250 words)
Background: India ranks last in the world in terms of old-age social security coverage.
- For more than three decades, India’s retirement age has remained around 60, ranking among the lowest in the world.
- The retirement age for central government employees was last revised in May 1998, when it was raised from 58 to 60 years.
- It is also in the 58 to 62 year-band in the private sector, with only a small segment with a shortage of personnel, such as doctors and scientific officers, having an age around 60 years.
- According to the World Bank, India’s life expectancy in 1998 was 61.7 years, and it is expected to rise to 70.1 years by 2020, and even higher in states such as Kerala and Tamil Nadu.
Experiences from other countries
- The global average retirement age for a man working from the age of 22 was 64.2 years in 2020, according to the OECD’s ‘Pensions at a Glance 2021’ report.
- For people entering the workforce after 2020, this is expected to rise to 66.1 years by 2064.
- Men’s remaining life expectancy at 65 is expected to rise from 18.1 to 22.5 years on average.
- According to the report, the normal retirement age for men will rise in 20 of the 38 OECD countries, with Turkey experiencing the greatest increase, from 52 to 65 years.
- Denmark is considering raising the retirement age from 65.5 to 74 years, Estonia from 63.8 to 71 years, and Italy from 62 to 71 years.
The need for and benefits of raising the retirement age in India
- Increased longevity o As healthcare facilities, purchasing power, and overall quality of life improve, there is a strong case for raising the retirement age in India.
- Reduced social security obligations
- Raising the retirement age in India will reduce the social security burden on organisations and the government.
- The increase from 60 to 65 should be gradual, perhaps over a 5-year period.
- Increasing the number of working years not only increases contributions but also reduces pension outlays in the long run.
- Working-age population and demographic transition o According to the Economic Survey 2018-19, all major States are expected to see a decline in the share of young people and an increase in the share of elderly people over the next two decades.
- By 2041, it will be less than one-fourth of the population under the age of 20, but one-fifth or more of the population over the age of 59.
- This not only reduces the working population, but also raises the burden of pension payouts in the coming decades.
- Fiscal ramifications in difficult times
- With pension expenditure accounting for approximately 5% of the Centre’s total expenditure and more than 10% of many States’ expenditure, the fiscal situation will receive a much-needed breather if the retirement age is raised soon.
- This will be useful, especially in the coming years, when the fiscal situation will be difficult.
- Increase in income tax revenue o Another benefit for the exchequer is that increasing retirement age will increase income tax revenue because older employees typically earn a higher salary and thus pay more tax.
Concerns about the retirement age increase
- New job generation will suffer o Delaying retirement age will impact the youth as there will be fewer jobs for them and employment opportunities will be reduced.
- It will be a difficult situation to be in as India approaches the peak of its demographic dividend.
- Promotions and other administrative difficulties
- Reducing the retirement age will be an administrative issue, exacerbated by issues related to promotion, seniority, and so on in the public sector.
- Opposition from a variety of stakeholders
- Many employee unions may oppose the move, claiming that the only way to create jobs is for older people and those approaching retirement age of 60 to retire.
- Gaining the trust of the employees will be a herculean task.
VRS and hybrid methods are the future.
- Reducing reliance on older and obsolete jobs o The transition is unlikely to be smooth, with many people believing that the only way to make jobs available for the youth is to ask older employees to resign.
- However, reliance on these jobs will need to decrease in the coming years as technology companies and start-ups have led to a thriving digital economy, rendering many jobs obsolete.
- Youth reskilling and vocational training o While technology-driven unemployment has been a major challenge, it has also provided numerous employment opportunities for the country’s educated youth.
- As a result, reskilling and vocational training should be prioritised, as skilled youth can land good jobs in new tech companies.
- Voluntary Retirement Scheme (VRS) o Give employees nearing retirement age the option of taking voluntary retirement or continuing to work.
- Many organisations already offer VRS options to employees over a certain age.
- Such options ensure that those who do not want to extend their working years are not burdened.
- Re-employing at different jobs o Some jobs that require physical activity may not be appropriate for the elderly, and companies in such segments may consider re-employing those over a certain age with a different job profile.
Conclusion
- In India, all stakeholders, including citizens and policymakers, appear to be apathetic, resulting in India ranking near the bottom of the heap in terms of old-age social security coverage.
- The advantages that older employees bring in terms of experience, commitment, and loyalty could be beneficial to most organisations in the long run, so serious consideration should be given to this issue.
