Why was National pension system introduced & Lessons for investors

In 1998, the Committee for Old Age Social and Income Security (OASIS) was set up. It noted that the population of the 60+ age group is expected

⬆️ increase by ~ 107% between 1991 and 2016

✅Senior citizens represent 9-10% of our population today and this is expected to grow to13.3% by 2026.

✅The life expectancy after normal retirement at 60 is expected to be at least 15-20 years.

📝 Even if one assumed no increase in government employment after 1992 (true in many areas) the pension expenditure for the central government will increase from

⬆️ ⬆️ Rs. 35,690 million in 1995 to Rs. 2,71,830 million in 2015.

A CAGR of ~ 17.5%!

That means 17.5% more expense PER YEAR for government ( increased burden on government) to pay pension

7th Pay commission report stated

Pension expenditures of the central government grew at rate or 21% per Annum during period from 1990 to 2001 !!

Government realised the increased burden involved in providing pension to eligible pensioners, if the old pension system continued both the Central and State government would end up with bankruptcy!!!!

They came up with National Pension System on 22nd December 2003 for Central government employees

The single sole intent was

✅Pass the burden of providing inflation adjusted pension from the shoulders of Government to Financial market !!

Government realised that long term investment in financial market ( EQUITY & BOND) can possibly beat inflation and remove the huge burden on government exchequer !!!!

What’s the learning for we common investors ????

1️⃣ A big entity as big as Indian government: the largest democracy of world is relying on Equity market to provide inflation adjusted pension to its pensioners !!

What’s stopping us from following suite and applying the same principle in our personal finances ??

We should consider investing significant chunk of our savings into equity and debt : this would also provide inflation adjusted returns !!