Ipods, cellphones, branded apparel, fairness creams, hair colour, deodorants, coffee outings, pubs, vacations, dates, films, music … the list is endless. Gadgets, personality enhancing items and entertainment — young India is splurging with gay abandon. And why not, 25-year-olds, especially the cosmopolitan variety, are earning more than what their fathers took home at retirement. The only cloud on the sunny sky of India's youth is the absence of concern or a savings head marked ‘retirement'. “Right now, I want to be the first to own the latest cellphone in my gang,” beams a chirpy Monica Sharma, 28, who has just quit a private airline to head the marketing department of an export house. “I will have all the time in the world to plan pensions later.”

India's old-age problem is not well-understood. Perhaps because India — with an average age of 26 years — is amongst the world's youngest countries. The presence of 15 youngsters for every old Indian, a low dependency ratio, too is a smoked mirror. However, India will not remain young for very long — the above-60-years population would double to 160 million in the next two decades. And then, it would be too late to begin saving. “The need for pension reforms in India arises from low coverage of the existing old-age security programmes, demographical trends and the government's fiscal constraints,” says Pension Fund Regulatory and Development Authority's (PFRDA) Chairperson D. Swarup. Pension saving is a tedious, time-consuming process. It needs a well-regulated pensions industry. Returns depend on compounding, giving an edge to the early birds. An additional contribution of Rs 2,500 towards pensions at the age of 20 can enhance the lumpsum retirement benefit at 60 by Rs 25,000.

The problem, as Swarup hints at, is grimmer. Those who want to save for retirement can't do so because a pensions industry doesn't exist. Those who do have access to the existing rudimentary pension system cannot rely on it for worry-free retirements. The coverage of the existing old-age income support systems is grossly inadequate. Only 18 per cent of the total workforce of 425 million is covered by formal pensions. The 22 million who work in the public sector are lucky to get state-funded pensions, with the bureaucrats taking home inflation-indexed benefits that replace up to half their last-drawn salaries. Some 5 million private sector employees also get some, albeit less-lavish benefits. However, the 348 million unorganised sector workers, comprising 82 per cent of the workforce, have little or no access to formal schemes for savings to sustain them after retirement. “Any delay in pension reforms will nullify the advantages we have,” says Swarup.

A three-pronged strategy is required. First, the formal pension system has to be opened to all. Second, it needs to be reformed so that it can generate adequate returns. And third, co-contributions must be extended to those who do not earn enough to save.

STRATEGIC PLANNING: Government co-contributions must be extended to those who do not earn enough to save Of the 284 million that have zero access to formal pensions, 90 million can afford them, according to a survey by Delhi-based pension policy think tank Invest India Economic Foundation (IIEF) spanning 1 million respondents, and the PFRDA's assessment.

This is the sizeable chunk — comprising the self-employed, tertiary sector workers and traders — the PFRDA is trying to gain coverage for through the New Pension Scheme (NPS) it is running for employees joining the public sector after 1 January 2004. The NPS is a defined contribution (as opposed to defined benefits) programme that lets savers choose the investment instruments, ranging from equity to debt, and a default option they would like their kitty to be parked with. It will pay out market returns. The PFRDA has recently appointed fund managers to manage the Rs 1,200 crore transferred by the Central government. So far, the money comprising matching contributions by the employees and their employers was being deployed in government securities.

Though the PFRDA appointed fund managers to manage the NPS for government employees last year, private and unorganised workers can't join it, unless Parliament passes the PFRDA Bill. A parliamentary standing committee has recommended that the Bill be passed with minor changes. The government has redrafted the Bill incorporating these changes, yet the resistance from the Left parties, who are opposed to the deployment of pension savings in stockmarkets, has prevented finance Minister P. Chidambaram from introducing the redrafted Bill.

IIEF also estimates that 60 million of the currently uncovered want to save for retirement but do not earn enough. This category, comprising labourers, dabblers in odd jobs, even beggars, need assistance from the exchequer. “For instance, a vegetable vendor could contribute Rs 100 to an old-age scheme, which the government could beef up,” suggests Gautam Bhardwaj, director of IIEF.

Then, about 40 million in their 50s are 10 years away from retirement. Contribution plans have little utility for them as they hardly have time to build corpuses. The survey has shown that a number of them have achieved a useful asset — they own property, which could provide rent or reverse mortgages.