Pension has always been a touchy issue, especially so when the authorities have tried to weaponise the idea of social security. France, thus, is in the news, thanks to the government’s reformist pension policy and the massive opposition that its stance has spawned. At the core of the matter is the French government’s proposal to raise the retirement age to 64 years from the current 62. Emmanuel Macron’s proposal has a pragmatic underpinning: demographic changes have rendered the extant pension laws inefficient.

France’s experience has a lesson for pension administrators in India. To appreciate the issue in the local context, one needs to understand two significant aspects — life expectancy and retirement preparedness. A third aspect, the controversy surrounding the new pension system, must also be explored.

Indians are living longer. This translates to what is called ‘longevity risk’. Ordinary citizens tend to outlive their resources. This adds to their retirement under-preparedness. Added to all this is the somewhat regressive move to adopt the old pension system. A number of states have already announced their intention to do so, regardless of the burden this will add to their coffers. Gone are the days when employees worked till at least 60. People who are barely in their 50s are being let go, a fall-out of corporate cleansing. The problem seems to have compounded after Covid-19. Worse, it is a consequence of mergers and acquisitions, closure of verticals, or restructurings. The advent of AI and machine learning might just worsen it.

A huge number of Indians depend overwhelmingly on government welfare schemes. The enormous social security bills notwithstanding, they serve the unorganised sector well. We are referring to the small shop employees, informal labour, low-skilled people engaged in trades, transportation workers and the like. Most of them, unfortunately, have little recourse to formal pensions. According to an estimate by the World Bank in 2016, the global population segment aged 65 and older will double to 20% by 2050. Nearly 1.3 billion people, roughly 80% of the elderly, will reside in low-income countries. Only a third of the population in these nations have any sort of organised retirement infrastructure.

Policy makers in India have clear tasks ahead of them. One, increase retirement age to, say, 65 years and help it remain stable. Two, make retirement savings compulsory with the help of the New Pension System in the organised sector. Three, pension savings must be mandatorily invested as actively as possible in the equity and debt markets so that efficient returns are generated for the long term.

The last bit has already ignited a mild controversy because of elements opposing the idea of risky equity investments. Debt or fixed-income, they argue, is a far better route for deployment of retirement money. The proponents of the conservative idea seem to have forgotten the limited scope for debt investments. It is difficult for the average debt instrument to meaningfully outdo inflation. Equity, on the other hand, is perfectly capable of delivering superlative performance. But equity is quirky; there can never be any guarantee of performance. The trick is to communicate the relevant points to the common Indian saver.

The bulk of the global pensions’ burden is on governments and private corporations. This is true for India as well. A higher retirement age will help our nation — just as it will help France. Contributory pension must continue till the death of an individual. So when life expectancy increases, the total amount of pay-outs goes up. Additional working years will help augment contributions and bring down the overall pension spend.

India is set to become an ageing nation. A large section will have no pension cover. This will add to our dependency ratio — the metric that helps us determine how retired folks depend financially on family.

As demonstrations intensify in France, as proponents of the old system in India prime their arsenal, as administered-rate retirement benefits clamour for attention, pension reforms will steal the limelight for years to come.

Nilanjan Dey is a retirement planning educator