Why India needs a centre for research on retirement behaviour
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There is a growing recognition among Indian policymakers that the country needs to make more strategic and nuanced use of digital technologies, increasing availability of big data, and the capacities to engage in data analytics in various sectors of the economy. The Digital India initiative is designed to support and implement innovative solutions for desired outcomes from public policies.
It is in the above context that a strong case can be made for establishing an Indian Centre for Research on Retirement Behaviour (ICRRB).
India is usually classified as a rapidly ageing country due to declining fertility rate and increasing longevity. India’s official total fertility rate (average number of children a woman produces during reproductive age) was 2.3 in 2016 (2.1 is considered a rate at which population replaces itself), a sharp decline from 3.2 in 2000. Such differential fertility rates have meant large internal migration; and increasing cross-state border manpower flow. These require tracking and more rigorous empirical analysis.
Longevity in India is increasing but there is considerable heterogeneity among regions and various occupations and other groups. Indian women exhibit life expectancy at birth of around three years more than men (69.8 years as compared to 66.8 years in 2015), but they have less resources for retirement as a group. A more systematic analysis would help evolve more nuanced policies to achieve better gender equality for retirement security.
With rising longevity, India will also need to consider demographic research on retrospective ageing. “Prospective age” measures the number of expected years left to live by individuals. With increasing longevity, a 50-year-old person, who currently has a much longer life expectancy than a 50-year-old in 1990, may well make different saving, investment, labour force participation and other decisions. The differing behavioural decisions in turn have different implications for public policies and social attitudes towards ageing policies.
Rising longevity also implies that age-related diseases, and the need for long-term care arrangements will acquire greater significance. It is important to track such behaviour and their implications for public policies.
In India, a substantial proportion of labour force does not have employer-employee contractual agreements. An increasing share of labour force is self-employed but not adequately captured in the labour market statistics. They, however, still require a policy environment and instruments for long-term retirement savings.
Rising membership of pension funds
The Employees’ Provident Fund Organisation (EPFO) and the National Pension System Trust (NPS) have a substantial volume of digital data that may be accessed for policy-relevant analysis. The volume of data can accelerate in the future as the EPFO and the NPS gain more members and assets. As of January 2018, combined active contributors were about 60 million, and their combined assets were equivalent to about 10% of GDP.
India’s mutual fund industry and India Post Payments Bank have also acquired substantial volume of data, which can be utilized for evolving policy options, refining existing schemes, and tracking behaviour.
With rising membership and assets, and increasing choices offered by provident and pension funds, there is an urgent need to understand how the retirement income choices are made by different groups. Insights from behavioural economics, and diverse measures being undertaken by different countries to make pension promises more credible, can be more easily be incorporated in India’s public policies by an organization such as ICRRB. It can also undertake customized studies.
In many countries, in addition to social security organizations having strong internal research divisions, there are research centres usually established at an academic institution. In the US, there is a Centre for Retirement research at Boston College; and Boettner Centre for Pension and Retirement security at Wharton School, University of Pennsylvania. In Australia, there is a Centre of Excellence in Population Ageing Research at University of New South Wales.
The EPFO and the Pension Fund Regulatory and Development Authority (PFRDA) need to consider establishing research capabilities within their organisations. They must at least have professional staff who understand research generated from data analytics, and are able to communicate the relevance of the findings.
But there is also a need for a well-funded and professionally staffed autonomous or independent research centre on retirement behaviour with capacities to fully benefit from digital technologies and data. The initial funding will need to come from the government, with flexibility to raise funding from other sources over time.
Options for locating the centre include as an independent unit within the NITI Aayog, or as a new autonomous organization. The advantage of setting up with NITI Aayog is that the existing physical and other infrastructure could be used; and its expertise could be more easily available to both central and state governments.
In India, academic institutions are unlikely to be a suitable location for retirement research centre at this point. But it is hoped that some institutions, particularly those that have resources and policy autonomy, would consider setting up their own research centres on ageing policies.
Mukul Asher is professorial fellow, National University of Singapore