India's retirement crisis belongs to the young

**Snigdha Sharma** (0:01)
There is a story doing the rounds across the west right now. Adult children are moving back into their parents' homes, eating into their retirement savings that took decades to build. Americans even have a name for them, boomerang kids. Newspapers are full of advice on how to protect your nest from your own children.
To a lot of us Indians, this story might sound a bit bizarre.
An adult child living with their parents is not unusual for us. For generations, Indian families have worked on a different understanding. Parents spend decades investing in their children, school fees, college tuition, coaching classes, even a wedding and maybe also the down payment on a first home. Later, when those parents grow old, the money flows in the other direction. Children pay the medical bills, the groceries and the monthly expenses. We think of it as our culture but it is also our pension system. And this is partly because the formal system reaches only a fraction of the workforce.
Less than a quarter of Indian workers are covered by formal retirement schemes like the EPF or the NPS or the National Pension Scheme.
Unsurprisingly, the country already ranks among the world's worst pension systems and its retirement savings gap is projected to reach a staggering $85 trillion in another 25 years or so. Which is why most people so far have relied to varying degrees on the family. And for decades, this arrangement looked like one of India's greatest strengths. Richer countries built retirement systems around pension funds and social security, and we proudly said to ourselves, The West is growing old and lonely because it lost the family. We will be spared of that because we still have ours. But that system was designed for a different India. The children paying into the traditional Indian setup are taking longer to become financially secure. AI is making the job market tough, rents and property costs in urban cities are going through the roof. And on the other end, parents who are drawing from their kids are living longer than ever before. Healthcare costs are rising. By 2050, India will have nearly 347 million people over the age of 60 That is more than double the number that it had in 2022 In other words, the family that everyone thinks is India's safety net is quickly becoming the reason that many Indians have none.
Welcome to Daybreak, a business podcast from The Ken. I'm your host Snigdha Sharma and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Varghese and I will come to you with one business story that's worth understanding and worth your time. Today is Tuesday, the 4th of August.
I want to start with the most surprising data that I found on this. You probably already know that India's working age population has been growing steadily. It went from around 58% at the turn of the century to nearly 65% today. In fact, it is expected to keep rising for the next 15 to 20 years at least. This is the data that we boast about to the rest of the world. So by the usual economic logic, this is exactly when a country saves the hardest for the years ahead. Household savings should be going up substantially.
Turns out, the exact opposite is happening. Net household financial savings fell to about 5.1% of the GDP in the financial year 2023, the lowest in roughly 50 years. And the wider savings rate dropped from 22.7% to just 18.4% in 2 years.
This gap is being filled with debt. Borrowing has climbed to record highs, and lending to Indians under 35 through FinTech apps grew around 36% in a single year, and most of it was unsecured. Add the cost of the big cities, where rents are going through the roof, and the idea of a first home keeps slipping further away.
A young country is spending its way through the very years that it should be saving. In the end, the child who is meant to fund a parent's old age is struggling to fund their own.
Now, look at the other end.
One in three of India's elderly population has no income of their own. Naturally, when the money runs short, the call goes to the son or the daughter. That transfer, repeated across millions of homes, is the pension system of our country. Just to remind you of an important number that I mentioned earlier, by 2050, India will have nearly 350 million people over the age of 60 And this is more than double the number in 2022 Now, add to this one of the weakest pension systems in the world. India ranks 45th of 47 in the Mercer CFA Global Pension Index. And that is a grade D. Meanwhile, the parents drawing on support are living longer. So the money has to last for more years. The number of Indians over 80 is set to grow by 279% by 2050 Basically, the frailest and the most expensive group is rising the fastest. And their sharpest risk is medical. But health insurance, as we know, is also abysmal in India. Households still pay more than 40% of the country's health bills straight from their own pockets. Only about a third of the elderly hold any health insurance. One serious illness can erase a lifetime of savings. So the draw grows larger and longer precisely as the people paying in grow weaker. And once aging accelerates, building universal social insurance or a good pension system becomes way more expensive. The market has already read these patterns. For example, money is flowing into the business of caring for the old, with senior living headed to about $8 billion worth by 2030 But the one product that was specifically designed to turn a parent's own home into an income, the reverse mortgage also went nowhere. Bankers who try to sell it hit the same wall every time. Families want the house to pass on to the children, and the children resist handing it over to a bank. So the house cannot rescue the parent because it is already promised to the child. But you know what? India is asking this question while it is still young, which is the best possible time to answer it. Countries poorer than we were once, with the same issues of a young informal economy, have managed to build pension systems that hold. Not without their flaws, but they're there. Stay tuned for more on this.