The decision to retire is often predicated on a number of factors including financial stability, healthcare, social connections and personal aspirations. White collar workers or professionals generally tend to have more choice about retirement than blue collar workers, those working in labour intensive and informal sectors.
These people could struggle more as formal pension schemes either do not reach them or are not enough at the point of retirement to provide a comfortable life. In extended families older members may choose to continue working to support their children or grandchildren. Therefore it is a complex issue.
According to World Bank estimates, by 2030, one in every five Sri Lankans will be over the age of 60. In 2012, 13.2 million of the population were 15 to 59-years-old. Of these, 7.6 million were economically active. However, only five million workers were eligible for pensions under various employment-based pension schemes. Of those, only 2.3 million workers were enrolled in a pension scheme. Even then all enrolled were not effectively covered.
Only the public sector pension scheme covers the total eligible population. This is also one reason why State employment is so sought-after but whether this pension keeps pace with inflation remains a concern.
The estimated coverage for other pension schemes fluctuates between 18% for the self-employed pension schemes to 64% for the farmers’ pension scheme. However, the effective coverage is estimated to be much less, possibly as little as 11% for the self-employed and 38% for farmers due to non-payment of dues in the contributory programs. Only an estimated 1.7 million were effectively covered by a pension scheme.
Unfortunately, all informal sector pension programs define benefits in nominal terms. The real value of these benefit amounts will be much less when the pensions are received. For example, the pension scheme for self-employed promises a Rs. 1,000 pension benefit at retirement. The real value of this benefit for a person aged 40 today will be Rs.471, assuming 5% inflation.
This has been observed in the public pension scheme as well, where those in less lucrative public jobs find it difficult to make ends meet and rely heavily on their families. The latest proposal in Budget 2021 to introduce a self-contributory pension scheme for self-employed is likely to be unsuccessful unless these systemic issues are fixed.
This is also where Sri Lanka faces the biggest challenge. Locally little attention is paid to retirement funding outside of the Government-mandated EPF and ETF. Life insurance policies have been promoted by the private sector but there reach remains minimal.
Banks have a significant responsibility in crafting products that enable even low-income workers to save for the future and protect their assets against inflation. Pragmatic Sri Lankans prefer to save in assets but there management often becomes difficult as people grow older, making them dependent on children or other relatives.
COVID-19 has shown that retirement is linked to labour law flexibility where flexible work hours can help older professionals, new employees and company structures so younger workers can get promotions while retaining older employees.
Extra income is also crucial to deal with healthcare, transport, living quarters and other essentials that become ever more expensive as people age. Keeping an aging population healthy is crucial to their productivity and continued economic growth in a country with demographic slowdown.
To reach these goals economy wide reforms are necessary and they should come with the input of the elderly themselves.