The 21st century is full of surprises, the rising population thought of as the biggest liability in the 1900s and the early 2000s has suddenly been looked upon as the need of the hour. With the coinage of the term Demographic Dividend, countries are becoming extremely worried about the rising old age population. To better understand the problems associated, one needs to look at and understand that how does any economy in general works. An economy is generally run by its working-class population who earn money in the present and are expected to save that, to be either used in their future or to support their dependent counterparts. To promote this steady cycle the government promotes savings and investment in terms of various tax benefits offered on investment. Apart from this , the government also takes care of its old age population by mandating and promoting several social security programs. A country that has a lower working class population faces problems in the aspect of financing for these social support schemes targeted towards its elder population as the people generating these revenue sources decline.
The economic scenario a decade back where countries were extremely vary of a rising population owing to the Malthusian pessimism has contributed in changing the mindset of the entire economy. People now, prefer having smaller families thus, leading to a little population growth. Couple it with with the stats on higher life expectancy due to better healthcare makes a perfect reasoning for the predicted decline in the demographic dividend of countries. These include almost all countries including the most populous countries of India and China as pointed by the UN World Population Prospects Report 2019. This brings us to a big problem as countries change in dynamics shifting the numbers away from the contributors to the dependants. If the proportion of contributors fall below a significant level the problem of on whom the dependants depend upon becomes a serious issue. Indeed this has become a cause of worry in many countries who have begun to fear social security provisions in the future. While there are a lot of ways this problem can be looked at, one such perspective is to look at the retirement age.
Many countries to solve this problem have come up with a solution to increase the retirement age of the working population. Countries like the US, UK and, Japan have already started with this plan by raising the retirement age, though increasing it in several periods. The Indian Economic Survey in 2019 has also pointed out to the requirement of an increase in the retirement age in the future and has hinted that this may happen in a coming few years. Thus, the survey played the role of informing the population sufficiently in advance so that the population has enough time to prepare themselves for this change. The survey timing was well thought as it came at a time when the economy was witnessing trends of higher life expectancy and better healthcare facilities and since, all these factors lead to higher productivity and longevity it provided the perfect argument as to why people can work longer. From the government point of view, the extra support by the working people from this move would support the economy by helping the state in terms of both taxes and reduction of the state expenditure. From the economy’s perspective, it leads to efficient utilization of the workforce and propagates the feeling of savings in an individual. The danger of a reduced budget for social security for the future generation and the threat of an end to social security are also some extreme arguments provided for increasing the retirement age.
While the above arguments hold, this has also been seen as a threat by the proponents of the current system who challenge this scheme on two ground, the quantity of social security and the argument on life expectancy. Coming out to the first argument, they point out that the increase in the retirement age from 66 to 70 is equal to a 20 percent reduction in the overall social security. Thus, this increase is not just making people work more but also is exploitative as it takes away a lot of their retirement advantages. They refute the life expectancy argument on grounds that this increase is evident only amongst the Top 5% of the population while the disadvantaged communities haven’t witnessed any improvements on these grounds. Coming to an American example where this shift in retirement age happened, there was a study published in the American Medical Association. This pointed out the increase in life expectancy between 2001 and 2014 was 0.32 for men and 0.04 for women in the bottom 5% of the population as compared to the top 5% numbers of 2.34 and 2.91 respectively. Thus, it proved that the claim on increased life expectancy is economically divided and is selective to the rich.
While the above arguments provide very important insights, what also needs to be realized is that this is not a revenue-oriented policy but the need of the hour. It involves anticipating the future; the increase in old age expenses and a carefully designed policy. While, increasing the retirement age might be a much-needed step, an equally essential step would be to look after several considerations such as old-age disability, the rapidly changing technological environment, etc. and to design a policy that is both efficient and equitable in its advantages.
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It’s not about achieving the end goal but about loving every step of the journey. A highly opinionated personality with a knack for learning something new every day, Aditya is in his final year pursuing Economic Honors at SRCC.