• PM-SYM
  • Pension Fund
  • Pensions
  • Pradhan Mantri Shram Yogi Maan-dhan Yojana
March 08, 2019

Securing life’s second innings

Opportune time to create a sustainable pension system

Developing a well-thought out pension system and encouraging adoption of pension products has gained urgency in view of the rising proportion of the elderly in India’s population. More so, because the traditional safety net – that of family support – has started crumbling in the face of rising nuclearisation.


True, with a median age of 27, India is among the youngest major economies today. But the demographic dividend is expected to shrink in the next three decades. An expected improvement in life expectancy and a decline in fertility rates could combine to shore up the share of the population that needs support in old age significantly.


A comprehensive social security net is also critical to growth of the economy. It can serve two major objectives – providing income security to a vast multitude of our ageing population, including in the informal/unorganised sector, and garnering long-term funds for critical, growth-driving sectors of the economy and the capital market.


We believe a developed pension sector can reduce the fiscal burden on the exchequer, and also have a stabilising effect on the economy by promoting long-term savings coupled with long-term investments.


For this, however, the large chunk of workers in the informal sector must first be brought into the pension fold.


The Pradhan Mantri Shram Yogi Maan-dhan Yojana, proposed by the government, has the potential to make a difference here, provided it is implemented well.


In addition, given the income profiles of the targeted group and the fact that pension is a long-term engagement, steps can be taken to bundle pension with insurance. This could act as an incentive for increasing the persistency of such subscribers.


Previous editions of our annual knowledge report had examined India on the World Bank’s five-pillar framework and then looked inward to see variations within its states on the pension barometer.


In this edition of the annual report, we compare the country with its neighbours in South and Southeast Asia on various parameters.


A number of points emerge for emulation and incorporation in the nation’s pension architecture.


Recent years have seen growing formalisation of the economy through implementation of the Goods and Services Tax and stricter implementation of tax measures. At this juncture, augmenting the capital market exposure of the formal sector pension corpus to map with the young demography and long investment horizon would help boost the vesting corpus for retirees.


But where the informal sector is concerned, monetary incentivisation does have its role. Our study shows that in most of the countries where voluntary pension coverage has grown, the success has been due to either matching contributions from the government or tax benefits.


The ball has been set rolling with PM-SYM, which proposes to take the co-contribution line. However, developing a pension ecosystem that is robust and inclusive will take sustained efforts on the ground and quick incorporation of the learnings.