Pensioning the future?

All countries go through a 8220;demographic transition8221;, starting out with many children, and ending up with an aged society. This induces huge stress since arrangements need to be made for income support for the elderly. India is at a unique point in history where the next 10 years will see an upsurge of young people going into the labour force. This is a one-time opportunity to put a sound pension system in place, where young people would be building pension wealth so as to stand on their own feet in old age, with the dignity of not requiring a government dole. The two mechanisms in India today to deal with old age income security, civil servants pension and EPFO , are dysfunctional. They cover less than 10 per cent of the population. In addition, both actually leave workers insecure in old age, as they depend on promises of a fiscally unsound government. Pension payments get so gigantic that the government8217;s word is not to be trusted. In nation after nation, including in the best-run European countries, government-driven pension systems have reneged on promises made to the elderly.

Existing mechanisms are legacies of the past. The EPFO has been ruined by bad ideas at the outset, coupled with decades of governance by BJP, Congress and Left trade unions. But reforming entrenched structures is difficult, and even when reforms come, they will not reach the 90 per cent of people in the unorganised sector. India8217;s only chance for genuinely solving the problem of old age income security is in fully rethinking the institutional mechanisms. For this, the PFRDA legislation should not become political football. The NPS was born with Maneka Gandhi at the ministry for social justice, nurtured by Yashwant Sinha, adopted by Jaswant Singh and CMs of all hues. But if this government fails on pension reform, India8217;s claim about bipartisan support for economic reform, and continuity across elections in complex decade-long reform efforts, will be greatly undermined.