Saving for retirement

A cliché often heard from top government levels downward is that India is fortute to be enjoying a ‘demographic dividend’ — over the next few decades, 60 percent of its population will continue to be of working age. But distant clouds are gathering. By 2050, for the first time, the number of dependent adults in the country will be the same as the number of dependent children. This projection was made in a United tions report titled ‘UN World Population Prospects’ last year. Retirement planning is the need of the hour for India, the report warned. This in turn necessitates a range of emerging social, economic and healthcare challenges to be tackled today, if the country is to prepare well for a graying population. The three major factors the UN report focused upon was higher life expectancy in India by 10-15 years; breakdown of the joint family system which meant that many elderly people do not get to live with their children and receive monetary support; and filly, working Indians are simply not saving enough. It now transpires from a HSBC survey that as much as 47 percent of working people in India have either not started saving for their future, or have stopped or faced difficulties while saving. Some other data also offer food for serious thought. The study titled ‘Generations & Journeys’ from HSBC’s ‘The Future of Retirement’ series found that over one-fifth (21 percent) of the working population surveyed have not even started saving for retirement, while 14 percent in their 50s and 22 percent aged 60 years and above have still not gotten around to start saving.

So what lies behind this widespread disinclition to face the hard reality of post-retirement years? Early this year, a study carried out by the global professiol services firm Towers Watson showed that Indian workers, in fact, have a high savings rate of 16 percent per year, which is second only to Chi. Yet 78 percent of Indian workers were not confident that they were ‘earning (and saving) enough’ to retire comfortably. In an age of high inflatiory pressures, they listed two ‘other priorities’ for saving — buying a house and saving towards their children’s education and/or wedding. It is clear that these two priorities involve so much expense that retirement savings mostly take a backseat. “If not acted upon soon, in the next decade or two, India might be faced with the critical challenge of retirees having idequate income,” so warned the Towers Watson report. In this context, another recent HSBC report titled ‘Value of Education Foundations for the Future’ shows how much Indians are sacrificing in investing towards their children’s future. The study found that 41 percent of the parents surveyed felt that funding their child’s education took priority over their own retirement savings. A high proportion (65 percent) of parents admitted finding it difficult to keep up with ‘other fincial commitments’, as paying for their child’s education required spending of over Rs 2 lakh per year on average. Yet, as much as 71 percent parents were willing to go into debt to fund their child’s college or university education.

It is a hard reality that only a small proportion of Indian workers are beneficiaries of formal retirement savings plan via the state or employer. Their statutory pension schemes and provident fund benefits form a major reason why even engineering, medical and doctorate degree holders apply for government jobs of clerks and peons. Private and self-employed workers have to provide for their retirement nest from their own earnings in voluntary saving schemes. For lower rung unorganized sector workers, the only hope for old age sustence is targeted social assistance and welfare schemes, which are just too meager. It turns out from HSBC survey that nearly 80 percent of pre-retirees sought advice from friends and family, rather than professiol fincial/bank/insurance advisors or government agencies. Is it any wonder that most Indian workers prefer to park their money in savings bank accounts, while Western country workers who save lesser still get better returns by going for more aggressive options? With fincial experts warning of ‘retirement adequacy’ as a major tiol challenge in the coming years, the government and employers need to take proper care of this issue. In turn, workers need to take professiol advice, begin saving as soon as they begin to earn, diversify their savings portfolio, go for insurance cover and keep constant track of their retirement funds and likely expenditure heads. They will be mostly on their own in old age, and the earlier they are prepared for fincial ups and downs in a changing economy, the better.