One factor India must keep away from a Greece and Italy-like pension disaster – Firstpost

The Financial Survey 2024-25 tabled by Finance Minister Nirmala Sitharaman in Lok Sabha on Friday warned that India must avoid getting into a pension disaster like these in Greece and Italy.

The 480-page doc has highlighted that India wants a pension system that’s designed to be each sustainable and scalable based mostly on its distinctive demography and labour market.

Rome has the best pension invoice within the 38-nation Organisation for Financial Cooperation and Improvement and says outlays will climb by 58 billion euros ($60.35 billion), or 19.5 per cent, by 2025 as rising costs enhance index-linked payouts.

In the meantime, throughout its decade-long monetary disaster that broke out in 2009, Greece was compelled by its worldwide lenders to slash pensions greater than 10 occasions to scale back state spending and meet its fiscal targets.

What poses an issue for India?

In relation to pension schemes, the survey stated, the normal “Pay-As-You-Go” (PAYGO) schemes don’t make sure that funding from the youthful workforce that pays pensions to retirees adjustments with a change in demography.

Inflation additionally performs an important position—small variations in how pensions are adjusted for inflation can result in vital variations in funds over time.

One other key problem is the low participation in micro-pension schemes, particularly amongst low-income people, who are inclined to prioritise rapid monetary wants over long-term financial savings.

What will be performed?

The financial survey stated that to satisfy these challenges schemes just like the Nationwide Pension System and Atal Pension Yojana have to be expanded as they cowl solely 5.3 per cent of the full inhabitants presently.

Nevertheless, noting that such a large-scale growth is a mammoth activity in a rustic of India’s measurement, the survey stated that government-level schemes have to be low-cost and accessible to the aged inhabitants.

“In precept, making an allowance for each scalability and sustainability, India’s pension
system design appears strong and steady. The NPS is without doubt one of the lowest-cost pension schemes
globally71 and its framework relies on an outlined contribution mannequin, which ensures that
future payouts are decided by market fluctuations, thereby lowering the fiscal burden on
the federal government,” it stated.