In today’s Finshots, we tell you how raising the age of retirement could benefit or hurt the economy.

But before we begin, here’s a question: Have you ever read Finshots and thought, ‘Wow, someone actually made all this complicated stuff make sense?’

Well, that someone could now be you.

WE’RE HIRING!

If you love breaking down complex ideas, crafting stories that stick, or know your way around marketing, we want to talk! We’re hiring writers, SEO specialists, video editors, and more! Our team made Finshots what it is today. And now, we need more curious minds to help us keep pushing boundaries and creating things people love! Interested? Head over to our Careers page.

Now, on to today’s story.

The Story

Cognizant just pulled a bold move. It bumped up the retirement age for its Indian employees from 58 to 60. The idea?

Simple. Keep the experienced employees around longer to plug the gaps left by the ones who leave. After all, a seasoned workforce sticking around could help offset the number of exits or attrition.

And this isn’t Cognizant’s first crack at solving the attrition puzzle. They’ve already implemented pay hikes and other retention strategies, which nudged their attrition rate down to around 15% in 2024 from 16% earlier. So extending the retirement age seems to be the next strategy in their play book. Smart move, right?

But this move got us thinking. Most tech companies in India let their employees retire at 58. But what if more of them decide to take a leaf out of Cognizant’s book and raise the age? Sure, it might help retain talent, but what would it mean for India’s  economy?

Well, you see, the idea of raising the retirement age isn’t new. India’s official retirement age was last bumped up in 1998 from 58 to 60. And in the Economic Survey of 2018-19, the government floated the idea of another increase.

If you’re wondering why, it all boils down to demographics. India’s population growth has been slowing for decades. Sure, we’re the most populous country now, but the growth rate has dropped from 2.5% in the 1980s to around 1.3% in 2016. And it’s likely even lower today. Combine that with declining fertility rates and you’ve got fewer young people entering the workforce.

Meanwhile, life expectancy, or the number of years a person can expect to live in good health, has climbed steadily. Back in 1950, the average Indian could expect to live just 35 years. By 2000, that shot up to 62 years. And by 2016, a healthy lifespan stretched to 73 years.

In simple terms, this means we’ve got a ‘silver dividend’ waiting to be tapped or a chance to unlock the economic benefits of an ageing population. And one smart way to make the most of it is letting experienced workers remain in the game a little longer by pushing up the retirement age.

“But Finshots, if we keep experienced workers in the workforce for longer, won’t that reduce job opportunities for younger people”, you ask?

Yes you’ve got a point there, and that’s actually why the government hasn’t raised the retirement age for the public sector yet, despite the Economic Survey suggesting it. This thinking is based on something called the “lump of labour fallacy”. Basically, it’s the idea that there’s a fixed number of jobs. So if older workers stay on, fewer roles would be left for younger ones.

But here’s the thing. Jobs aren’t static. They grow or shrink based on the economy’s size, demand and supply, market conditions and the growth of sectors. And most of these metrics are expected to rise over the years in India. Manufacturing, for instance, is expected to grow by 8% annually until 2050. Plus, India’s economy is set to expand tenfold from its current size of $3.7 trillion.

Add to that a shrinking under-19 population (from 40% in 2011 to a projected 25% by 2041), and the ageing workforce might just be the key to filling future gaps.

And while that may sound tricky at first, it could actually be a win for the economy and the pension system. Just think about it. If people work a bit longer, pension payouts get delayed. For example, pushing the retirement age up by just 2 years means that employers won’t need to pay pensions for those extra years. This lightens the burden on the pension system. Plus, it shortens the time retirees rely on their pension funds. Even in the public sector, delaying payouts could ease the fiscal burden.

Older employees staying on also means extended corporate health insurance coverage. Most companies don’t offer post-retirement health benefits, so this could be a win for employees. 

And finally, working a few more years means employees contribute more to the country’s coffers, both in taxes and through increased spending. After all, post retirement pensions are usually lower than a salary, so those extra years of work boost consumption and tax revenue.

It’s no wonder then that raising the retirement age is a global trend. The US began increasing its retirement age in 1983, gradually moving it to 65 and plans to increase it to 67. Countries like the UK, Australia, France, Germany and the UAE have followed suit. And many are even equalising retirement ages for men and women to boost female labour force participation.

So yeah, raising the retirement age could definitely benefit the economy, especially in the private sector. 

Still, it’s not all sunshine.

For one, it could be tricky for companies who might end up holding onto less productive employees. Forcing them to stay in the workforce could backfire as some employees would rather retire and pursue their passions, like starting a business or breathe life into a hobby they’ve always wanted to pursue. Plus, extending the work years might not always help pension funds grow since market uncertainties could slow down their pension’s growth, meaning they might end up with more or less a similar corpus to what they’d have, had they retired earlier.

Perhaps the way to tackle this is to have more flexible retirement options rather than a blanket retirement age increase. Like how Japan and Singapore have figured out a re-employment system after retirement, where retirees can work with reduced hours and pay, similar to part-time jobs. Or by letting employees voluntarily work longer or creating sector-specific retirement ages such as higher for desk jobs and lower for physically demanding roles?

Phased retirement could also work, where employees reduce their hours but still contribute to the workforce and pension funds.

Taking a thoughtful approach like this could strike the right balance. And maybe just maybe, that could unlock the benefits of an ageing workforce while minimising the downsides. 

What do you think?

Until next time…

Don’t forget to share this story on WhatsApp, LinkedIn and X.

📢Finshots has a new WhatsApp Channel! If you want the sharpest analysis of all financial news without the jargon, Finshots is the place to be! Click here to join.

🚨ATTENTION: FINSHOTS FAMILY

Want to secure your family’s future in 2025?

Our free webinar on life insurance could be your first step!

📅 When? Saturday, 18th January 

⏰ What time? 12:00 noon

We’re hosting an EXCLUSIVE session on one of the most important financial topics out there — LIFE INSURANCE.

Here’s what’s in store:
✔️ How to protect your wealth
✔️ The 5 biggest life insurance mistakes to avoid in 2025
✔️ Expert advice tailored for young Indians
✔️ Pro tips for creating a long-term financial plan
✔️ A breakdown of Endowment Plans, ULIPs and Term Insurance — which is better?

Click here to register now. Only 500 spots available! Don’t miss out.

Pro Tip: We’re expecting a big audience of over 400 attendees! Join early to ensure a smooth entry and secure your spot.