Pension reform — SAP: The carrot of the inflation indexation rate

The indexation of the State Age Pension (SAP) to the inflation rate is presented as one of the main innovations of the pension reform currently under study. According to sources close to the matter, the government would rely on an average inflation rate of 3.5%, observed over the last twenty years, to automatically increase the amount of the pension. At this stage, this rate is an assumption.

However, these same sources suggest that this reference rate would not be fixed. It would evolve according to real inflation, with certain scenarios counting on an increase of between 5% and 6% in the years to come.

For example, a person choosing to receive their SAP from the age of 60, with an initial pension of Rs 13,298, could see this reach more than Rs 30,000 at age 81 (average life expectancy after age 60) and Rs 50,000 at age 60. at the age of 90 and Rs 75,000 at the age of 100 thanks to the indexation mechanism, if inflationary projections are confirmed. Also, with the new formula a person who will be 70 years old in 2027 will be able to receive a pension of more than Rs 19,000.

In union circles, this formula is welcomed favorably. Several officials believe that it will finally preserve the purchasing power of retirees in the face of the rising cost of living. However, they urge the Ministry of Finance not to reverse this provision, despite the pressure that could be exerted by economic circles.

The unions also indicate that this indexation is of particular importance at a time when the International Monetary Fund (IMF) recommends, in its latest report, a gradual increase in the retirement age to 69 years.

At the end of a series of analyzes carried out over the weekend, several trade union organizations consider that the abandonment of the Means Test as well as the introduction of automatic pension indexation constitute two major advances in the reform. They emphasize that the various increases granted over the years to the SAP have not until now included any permanent mechanism to protect against inflation.

They cite in particular the increase of Rs 1,500 planned from age 75, which would now be added to the annual revaluation linked to inflation. According to their estimates, this category of retirees could benefit from an overall adjustment of around Rs 2,500. Furthermore, sources close to the negotiations indicate that another important development has occurred in the matter. The project to create the National Pension and Provident Fund (NPPF) should ultimately not be integrated into the Finance Bill in order to allow a more in-depth debate with the partners concerned.

At this stage, no official date has yet been announced for the entry into force of the NPPF