The three main requirements of old people are social, financial and health security. In India, social security and pension exist only for the formal sector, which employs just 10 per cent of the workforce. The rest, working in the unorganized sector, have no access to any kind of pension schemes.
Indian pension policy is based on employer and employee contribution. The Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS) invest contributions to fund retirement benefits. But investment options are highly regulated and yield low returns. And with government’s pension liabilities increasing by 5 per cent a year, it is becoming unviable for it to sustain them.
Even the amount received from the EPF after retirement is not adequate for income security in old age. The Old Age Social and Income Security report says an individual receives an average of Rs 25,000 from the EPF, not enough to sustain one’s needs post retirement.
A World Bank study says the EPS has a fundamental imbalance between contributions and benefits, given its restrictive investment regulations. To improve the rate of return, it suggests investing 30 per cent of the funds in the securities market.
For those not covered under any pension scheme, the government introduced the Public Provident Fund (PPF) in 1969. But an IMF report says PPF is largely urban centric and used more for tax planning by the high-income group than as an old age income security plan. Only one per cent of the working population has a PPF account.
The government in 2005 introduced the draft Pension Fund Regulatory and Development Authority Bill, which sets a framework for regulating pension funds in the country. Once passed by Parliament, this will allow the launch of personal pension accounts and cover the unorganized sector workers to a large extent.
To widen the social safety net for the aged poor, the government has introduced the National Old Age Pension, which provides monthly pension of Rs 75 a month to destitutes above 65 years. But the Planning Commission estimates that only one-third of the target group is covered under this scheme. A UN study says similar schemes in Latin American countries have helped the destitutes fight starvation.
Most senior citizens are dependant on their savings. The interest rates on bank deposits have shrunk from 12 to 6 per cent per annum in the last decade. Experts say policy makers should encourage greater personal savings for the elders by managing inflation to secure the value of savings over the long-term.
The Reverse Mortgage system, launched by the government this year is an ideal way for the elderly to generate income out of their property. A HUDCO study says such a scheme will help about 25 per cent elderly to meet their expenses.
Innovative tax planning can help generate finances for the elderly. For example in Canada, the government gives tax rebates to those who look after the economic needs of their parents. Such schemes can encourage children to take care of the elderly.