How to ensure income security for seniors
Family continues to be an important supporting institution for the elderly in India. Having spent most of their working life saving for their children’s education, marriage, and housing, they hardly pay attention to retirement planning, often believing that their children will provide the necessary financial and social security in their silver years. While this may be true in some cases, a large majority of elders in India face a tough time finding the resources for their post-retirement living expenses.
Globally, retirement systems follow a social contract that operates as a three-legged stool, namely, social security, workplace retirement benefits, and personal savings. In developed economies such as the US, Canada and many European countries, a chunk of the retirement income comes from social security while in an emerging market like India, people rely on their personal savings for more than 46 per cent of their retirement income.
The increase in life expectancy, ageing populations, and decline in the traditional family structure are now placing a growing financial strain on the social security safety nets, making it difficult for governments to support their senior citizens.
India does not have a universal pension programme for its 1.3 billion people. Our pension system currently ranks 32 out of 37 countries on the Global Pension System Ranking. This clearly outlines the inadequacy and the critical need to streamline and strengthen the pension programmes in the country. Further, only 7.4 per cent of the working-age population in India is covered under a pension plan.
The introduction of the National Pension System in 2004 however marked a radical shift from a government enabled pension programme to employee-oriented pension programme wherein employees started contributing towards their own retirement funds while employed. But the new pension system does not specify any provisions to support those employed in the unorganised sector. As India experiences major demographic shifts in the next two decades, it is important to extend the social security safety net to the remaining population, especially to those who do not enjoy any kind of social security.
The Draft National Policy for Senior Citizens 2020 has identified the loopholes in India’s pension system and has placed great emphasis on promoting and expanding the existing pension programmes to ensure income security for seniors. It further recommends that the old age pension scheme under the Ministry of Rural Development should be reviewed from time to time to cover all seniors living with disability or those below poverty line.
India has taken a serious note of its rising senior population, particularly those working in the informal sector who do not have adequate social security plans for retirement. Here are four key steps that the policy document proposes to build a strong senior care ecosystem in India:
Integrated insurance products and savings schemes: This basket of products and services explores the possibility of integrated insurance for senior citizens to address both their clinical and non-clinical needs. Further, India needs to adopt best international practices on bundled insurance products to better cater to the evolving needs of India’s population and provide them with multiple, effective saving options.
Currently, most Indians rely on personal savings for their post-retirement living expenses with minimal contribution from the government. Therefore, attractive and high-yielding investment avenues such as Senior Citizens Savings Schemes must be created to ensure continued financial independence for seniors.
Comprehensive insurance coverage and pension systems: Inclusion of care-at-home and assisted living services in health insurance will be a significant step towards building a well-rounded senior care ecosystem in India. Demand for dependable, specialised and professional senior care services is witnessing a steady rise, especially after Covid-19 outbreak. Additionally, the senior population is undergoing a radical change in their lifestyle and needs. From being a sacrifice-all population, it now has the aspiration and the financial means to fulfil their wants right from travel to investments to self-care. Income security will be critical to ensure that seniors are able to afford these services.
Senior-friendly tax structures and health schemes: Tax incentives need to be provided to those living with and taking care of their parents/other dependent senior citizens. The expenses on senior care solutions like home care and care homes should be allowed to become tax-exempt in order to enable faster penetration of such products and services. Currently, there is no clear exemption on GST for services on seniors. It only covers transactions at a hospital. Tax incentives on senior-specific services will not only encourage faster adoption but will also strengthen private sector participation.
Second-life career: The policy paper also envisages to provide support to people in their 60s and 70s to find alternative career options like teaching in schools and for consulting/advisory roles with government or private companies. Such practices will not only keep senior citizens meaningfully engaged, but also provide a healthy work-life balance. Another option is to increase retirement age from 60 to 70-75, in line with increased life expectancy.
A steady income in old age is critical for senior citizens to lead a life of dignity and to help them become self-reliant.