India's public spending on old-age pensions a mere 1% of GDP: Study

Aging population and low interest rates are putting pressure on existing pension systems across the world, said a study that pegs India’s public spending on old-age pensions to a mere 1 per cent of its gross domestic product (GDP). 

The study by Credit Suisse Research Institute (CSRI) calls for an urgent rethink on retirement provisions in the face of aging societies. The institute says a gradual increase in retirement age would be the optimum solution as doing so would extend the savings phase and shorten the average pension-payment period.

The share of 65-plus in the developed world has increased from 7.7 per cent in 1950 to over 19 per cent today, and is estimated to reach roughly 27 per cent by 2050. In contrast, the ratio stood at 3.8 per cent in developing regions in 1950, and is projected to increase to 7.4 per cent in 2020.

Public spending on old-age pensions and survivors’ benefits vary considerably around the world. India and Indonesia, for instance, spend a mere 1 per cent of GDP, while Germany, Japan and Switzerland spend 10 per cent. While the replacement rate in India is 95 per cent, the coverage rate, or persons above retirement age receiving a pension, indicates that receiving a pension is much more likely for South Africans than for Indians.

About 44 per cent of respondents in developing countries state that they expect personal savings and investments to be their major source of income in old age, with the highest values in countries like Brazil, South Africa and India. In developed countries, the corresponding figure is 40 per cent.

Countries’ development status plays an important role in whether people wish to continue working after reaching the age of retirement. Around 53 per cent of respondents in the developing countries wish to continue working versus only 28 per cent in the developed countries. 

India (75 per cent of respondents), Indonesia (65 per cent) and South Korea (63 per cent) are among the countries with the highest share of people who wish to continue working after the retirement.
“In these countries, not working beyond retirement age is associated with poverty. In India and Indonesia, the coverage rates are relatively low at 25 per cent and 14 per cent, respectively, indicating that the majority of people cannot rely on the pension system to fund a work-free period after retirement,” the study observed.

In the member countires of the Organisation for Economic Co-operation and Development (OECD), men currently retire from the workforce at an average age of 65.4 and women at 63.7. In European Union countries, the average labour market exit ages are even lower at 64.0 for men and 62.3 for women. In South Korea, the average effective age of labour market exit was 72.3 for both men and women in 2018 — the highest value among OECD countries. In Japan and Chile, as well as in non-OECD developing countries like Indonesia and India, men work on average until around 70 or above, the study noted.

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