Future challenges of India’s ageing population

OECD study on Preventing Ageing Unequally

Business & Politics

October 18, 2017

/ By / Kolkata



43 pc of the ageing population in India earn nothing at all

43 pc of the ageing population in India earn nothing at all

A demographically young country like India is ageing gradually. By 2050, 1 out of every 5 people in India will be over 60. Is India equipped to tackle the challenges such as financial inequality and basic life support of an increasingly ageing population?

The Organisation for Economic Cooperation and Development (OECD) has released a report on population ageing and rising inequality in OECD and emerging countries today. The report called ‘Preventing Ageing Unequally’ cites observations on world’s future elderly populace and their imperative threats. The 258-page report by OECD aims to decipher the risks of rising inequality among the future retirees due to various factors such as demographic changes, public finance constraints that affect the life prospects of the elderly in many countries and an assumption of how life will be for the present younger generation that will retire in the future.

India finds a mention as an emerging country and significant findings such as lack of a sustainable pension scheme for the informal and unorganised sector, inequalities in employment and income, low labour participation, gender gap and a growing cohort living with anxiety as well as physical disabilities found grim mention in the report.

While the OECD report aims to draw attention towards the good practices in OECD countries, it also strives to help the emerging countries like India to understand how inequalities in education, health, employment and income can result in lifetime differences across different groups.

Depicting concern for the oldest (in the age group of 80+), the findings of the report states the poverty risk is higher for this group and this is the section of the population that will need the maximum support services. “The share of people aged 80 and over is projected to more than double by 2050 to 9.5 pc of the total population, on average in the OECD, but up to 16 pc in Japan and Spain. In 2015, the 80+ group accounted for less than 1 pc in Colombia, Indonesia, India and South Africa, but 8 pc in Japan,” states the report.

The biggest health hazard for this group is mobility limitations along with other issues such as mental dependency and an increasing physical disability. The numbers provided in the report says, “More than 40 pc of the 80+ face some mobility limitations. Depression is frequent among them in England (57 pc for men and 70 pc for women), Italy (47 pc and 65 pc), for men in the United States (48 pc) and for women in Spain (60 pc).

While emerging economies like India has shown impressive progress in standards of living over the past decade- the OECD report investigates an uneven growth in most imperative metrics. According to the report, many of the inequalities in health, education and labour market outcomes are present – and often wider – in India like most of the emerging economies.

“Low labour force participation rates are likely to worsen existing inequalities, especially in those emerging economies that lack a solid social safety net. While China’s aggregate participation rate is comparable to those in North-Western European countries, India’s and South Africa’s are below 60 pc among the population aged between 15-64 years – similar to the lowest rates observed in the OECD, i.e. in Mexico, Turkey and Italy,” the study finds.

Furthermore, the report observes a major gender gap in labour force participation in large emerging economies like India.

The gender gap in the workforce and the increasing life expectancy in India are also taken into consideration. The World Health Organisation (WHO) finds that India’s life expectancy has gone up from 62.5 in 2000 to 68.3 in 2015 with female life expectancy is higher than male both at birth and at the age of 60. Thus in a country where the females have mostly depended on their partners might find themselves in need of a social support unless the issue of the gender gap is addressed.

In terms of the education and geography, there are challenges perceived by the OECD report mostly for the G20 non-OECD countries. “By contrast, rates of labour participation vary greatly between rural and urban dwellers. While urban dwellers are significantly more likely to be working (or looking for work) than their rural peers in South Africa, the opposite is true of India and Indonesia,” the study reveals.

How India's ageing demography will change over the years

How India’s demography will change over the next three decades (Source: UN Population estimates)

Pensions for all remain elusive

Old age inequality creeps in due to a disparity in pension systems across various nations and also depends on the earnings-related pension systems in the country. OECD member countries have a system of mandatory pension apart from a few exceptions (Turkey, Mexico and Chile).

If the share of workforce contributing to pension plans is compared between India (12 pc) with that of Brazil (50 pc) – the challenge of low coverage rates in developing countries such as India becomes evident. India also lacks a formal labour market participation which the OECD findings state as the most efficient way to increase coverage. Measures such as expanding mandatory pension to cover self-employed workers also found mention in the report.

According to a Pension Fund Regulatory and Development Authority (PFRDA) report, India is in a state of transition from a young to a greying country; where persons above the age of 60 would increase from 9 pc to 19.4 pc by 2050. The Chairman of PFRDA, Hemant G Contractor in his opening note to the report states, “Continuously declining inter-generational support within families makes it imperative to have a well-developed, self-sustaining pension system in the country.”

Lack of pension literacy and awareness in India was cited as one of the key challenges that retard the objective of universal pension coverage in India. Contractor in the same report states, “The pursuit of affordable, adequate, efficient and sustainable pension system will involve a great deal of inter-ministerial, inter-state, inter-regional and inter-institutional decisions and coordination.”

The report by PFRDA refers to an example where the government pension schemes such as Atal Pension Yojana (APY) for low-income groups is yet to penetrate the skin of the Indian unorganised sector. The contribution amount varies from INR 42 per month to INR 1454 per month depending on the age of the contributor and the amount of pension expected which ranges from INR 1000-5000. However, due to low affordability and lack of awareness despite rolling out low contributions, the scheme is yet to make a substantial mark. PFRDA testifies that as of February 2017, the APY had only 4.47 million subscribers which are less than 1 pc of the total working age population of India.

OECD elucidation

Despite challenges in financial sustainability in the wake of a rapid demographic change, the OECD highlights the importance of special provisions in the pension plans to prevent inequality among the ageing population in the world.

Defining first-tier pensions as the first layer of protection for the elderly generation – the OECD elucidates on the diverse schemes in various countries and the vulnerabilities in terms of poverty and homelessness that could be overcome. “Residence-based basic pensions range from 6 pc of average earnings in Iceland to 40 pc in New Zealand, whereas safety-net payments vary from less than 10 pc in China, India, Turkey, Korea, Mexico and South Africa to 50 pc in Brazil, though both China and Turkey also provide high minimum pensions of above 40 pc of average earnings,” the OECD study reflects.

In India, 74 pc of the elderly men and 41 pc of the elderly women receive some personal income whereas 43 pc of the ageing population earn nothing at all. 22 pc of those ageing Indians getting a personal income receive less than INR 12,000 per annum – PFRDA report on Financial Security of India’s elderly, April 2017.

As the future looks wobbly, whether an average person working for 22.5 hours a week in India can afford the modest necessities during his or her retired life seems to be a prized question – the marginalised, in yet more uncertainty.

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