Old ideas about seniors need to be discarded. They are more prosperous and are willing to pay for themselves, as Moneylife Foundation has concluded. Are policymakers alive to the changing reality of seniors?
Moneylife Digital Team
At Moneylife Foundation’s anniversary event on 5th February, Subhash Sawant, a retired banker, argued that banks must treat senior citizens properly and must have special counters to facilitate their banking operations, especially at the beginning of the month when they come to withdraw from their pension accounts.
A month earlier, a member of Bank of Baroda’s services committee was happy to see that the Bank had significantly changed its attitude to pensioners and already had special arrangements in place for pensioners who came to collect their pensions. On enquiry, this member learnt that pensioners had become valuable customers after the Sixth Pay Commission had hiked their pensions. Unlike in the past, when they cashed out their entire pension amount, these pensioners now had money left over in their savings account or in bank fixed deposits.
But Bank of Baroda is probably among the few exceptions among service providers which have understood that senior citizens are a valuable constituency. Policymakers and others (such as insurers) have yet to fully comprehend the impact of the macroeconomic as well as demographic changes that have suddenly altered the financial, social and even psychographic needs of senior citizens.
Where does the middle-class senior citizen stand in this respect? Well, only 7% of the working population, which constitutes the organised sector, is covered by pension schemes; and even the provident fund extends to only 5% of the total workforce in the country. We have addressed these issues in Moneylife Foundation’s Position Paper on“Financial Issues Faced by Senior Citizens.” Here is a discussion of some of most important issues.
NPOP: The National Policy for Older Persons (NPOP) framed in 1999, was formulated to provide a policy framework to review and meet the evolving needs of seniors. The NPOP clearly says that it is the State’s responsibility to provide financial assistance, security, healthcare and shelter to the elderly and protect them against various kinds of abuse.
As a policy document, all senior citizen groups in the country approve of the NPOP. The problem is that 11 years later, implementation and enforcement of the Policy is virtually non-existent. The government’s amnesia on the ‘oldies’ is easy to understand—they are definitely not a vote bank. But in a democratic country where most ministers fall in the ‘senior citizen’ category, the irony is glaring.
Or is it? It depends on which reference you use. To begin with, there isn’t even a uniform definition of who is a ‘senior citizen’. While Indian Railways allows concessions for people above 60 years, national carrier Air India (which includes former Indian Airlines) does not consider someone eligible for concession if s/he is not 65. In the Punjab, anyone above 60 can travel free in state transport buses but, in Maharashtra and Chandigarh, senior citizen discount is available only for people above 65.
It is imperative that we standardise 60 years as the age for a person to be called a ‘senior citizen’ and be eligible for all concessions and benefits available to that group of persons.
That is just the beginning. The documents that are acceptable as age proof must also be standardised and specified entities (which could include certain large non-government organisations or NGOs) must be authorised to issue ‘senior citizen cards’ that would be valid and accepted by all organisations and government authorities for travel, tax, banking and other concessions/formalities.
Dwindling incomes: Seniors have to grapple with dated attitudes and policies that fail to consider the changing needs of the once financially stable seniors who now live on savings that are being steadily eroded by high inflation. Economic liberalisation and rapid economic growth over the past two decades has meant a period of high financial turbulence for senior citizens. With the bulk of their money in fixed-income investments, they have had to cope with a wide variation in their income—based on the huge fluctuations in interest rates on fixed deposits (these have varied between as low as 6% and 10% over the past decade).
While income from deposits has dwindled, the cost of food and healthcare has been galloping, especially in urban areas. India’s social security schemes, such as they are, do not stretch beyond the below poverty line (BPL) population (these include the Annapoorna or Annapurna Scheme under which elderly people from the BPL category get free food grains) or meagre travel concessions and a 0.5% higher interest on fixed deposits offered by banks under various senior-citizen schemes.
If one polls the elderly about the problems they face, it is apparent that most senior citizens realise that their financial security plans are problematic. They keep their savings as fixed deposits in banks, which keep their money safe, but yield too little to beat inflation.
One of the most tragic examples in recent times is that of the much-loved actor AK Hangal. Now in his twilight years and over 90, the man who played father to (almost) every Bollywood star and surely paid all his taxes when he was a much sought-after character actor, is ailing and reduced to penury.
In Mr Hangal’s case, a media report had the entire film industry scurrying to his rescue, but one wonders what will happen to his photographer son, who is also a senior citizen, who has exhausted all his savings in paying his father’s medical bills and will probably be around for a few decades more.
TDS & refund: Now, consider the problems faced by seniors due to our unique tax structure which forces citizens and other tax-paying entities to collect tax for the government through tax deduction at source (TDS).
Anish Ghosh is a professor of mathematics in a private college at Kolkata. One fine day, after he retired in 2006, he decided to apply his expertise to his bank statements. After a couple of hours of vigorous scribbling, reading and chin-scratching, he arrived at the conclusion that he was paying a considerable amount as tax on the meagre interest he was receiving on his fixed deposits.
Though confused, Mr Ghosh took the advice of his friends and applied for TDS exemption. He was also relieved to see that he was due for a refund, but the feeling evaporated soon after. “I had to wait for months to get the refund,” he says. “I needed the money earlier, but because I was not sure when the refund would arrive, I had to ask for help from my son.”
Mr Ghosh was lucky to receive his money rather quickly. There are countless others, for whom the process of filing a return—merely to get a refund on the tax deducted by banks—is a tortuous experience.
Often, banks callously deduct tax even after a person has filled out the 15H form declaring that s/he is not in the ‘taxable’ bracket, and seniors either end up paying unnecessary tax (when they have no taxable income) or are forced to file a return if only to claim a refund.
Health insurance: The KS Sastry Committee report on senior citizens, submitted in May 2007, recommended that senior citizens must have access to health insurance, and companies must have at least one product targeted for that group. Even those who do not have prior health insurance cover, must get a ‘long-term healthcare’ insurance policy based on one-time payment of a lump sum reimbursement. The report still sits pretty on the proverbial shelf, gathering dust. For senior citizens, healthcare is the most crucial issue. Almost all NGOs who work with senior citizens have urged the government to implement the report, but to no effect.
With complicated transactions, unprofitable schemes and limited number of policies, the elderly are always worried about their future and the burden they would impose on their families in case they fall ill.
Kaustav Biswas, despite his hefty government pension amount, had problem to contend with after retirement. A diabetic, Mr Biswas suffered a near-collapse about a year ago. Luckily for him, he already had a health insurance cover which saw him through the surgery. But many of his friends may not share his luck.
“I took a Mediclaim (policy) because I knew things would not be the same always. Now, many of my friends want to get a health insurance cover, but they cannot, as there are no such policies for people of our age.
But after Mr Biswas was discharged, he had a harrowing time with his insurance agent. Long phone conversations, repeated visits to the office, tonnes of documents and, three months later, he finally received his claim reimbursement when some of his friends in the company decided to step in. “Considering the experience I had while making my claim,” he said, “I pity others who don’t have friends like I have.”
“I have never taken any money from my daughter,” says Mr Biswas. “At times, things looked so hopeless, because the dialysis was expensive, and the prospect of asking for money from my son-in-law was just awful.” Pride becomes a concern when catastrophe strikes. A stay at a hospital may cost you a huge part of your savings. But, with only a handful of senior citizens having access to medical insurance benefits, it becomes more important for the government to ensure that the rest are financially protected from health hazards which are unavoidable in old age.
In fact, most seniors would say that adequate insurance cover is their single biggest problem, since insurers continue to shun seniors— they either discourage them from getting an insurance cover by charging high premium on policies or by imposing an age ceiling.
This attitude continues, even though data collated over the past decade clearly shows that insurers have lost more on group Medicare policies sold to corporates (which offer treatment at ‘five-star’ hospitals) than they have on policies issued to senior citizens. Consequently, anyone above the age of 60 lives with the perpetual worry of being shunned by insurers and the lack of availability of trained geriatric care-givers or hospices. Meanwhile, healthcare costs, especially in larger cities, are galloping at 20% compounded annually, according to a study by ICICI Lombard General Insurance.
The insurance regulator, the Insurance Regulatory and Development Authority (IRDA) needs to set up a compulsory target of senior citizen portfolios that each insurer needs to hold. The access to insurance and the claims procedure must be simplified and agents who sell policies to senior citizens must remain accountable for mis-selling if the claim is repudiated on that ground.
Financial literacy & protection from abuse: While inflation and healthcare costs are eroding the fixed income of senior citizens, poor financial literacy, coupled with the desperation to increase their income, makes them a target for scamsters.
Take Smriti Sahukar from Hyderabad, for example. After she retired from her job in a software company, Mrs Sahukar decided to invest in the share market. She came across a charming financial advisor who chalked out the plans. Enthusiastically, she went on pumping in more money as the advisor demanded. Suddenly, after two years, she discovered that almost all her savings had vanished. The advisor explained in detail where things had gone wrong and how it was not his fault that she had lost.
“I trusted him because I did not have much knowledge of the market, says Mrs Sahukar. “My son said that after retirement, it will be better to increase the savings by investing them. I did whatever the advisor asked me to do. Now, he is gone, and I have lost almost everything.” This story is being repeated a hundred times over in each city of this country.
Instances of elderly people being duped by fraudulent companies and policies are fairly common. Often, we hear of trusted associates and family members of senior citizens misusing the latter’s money or exploiting them financially. Most people do not know how to manage their resources and the elderly are often averse to learning, because for them, things often look more complicated.
New financial products for the elderly: Newly-launched reverse mortgage schemes are structured as annuities and, hence, the payments are taxable. There is a clear need to exempt reverse mortgage from tax. One of the cornerstones of financial security of senior citizens is retirement savings and pension. Pension savings are the primary sources of security, after retirement. With a formal pension system, individuals should save during their working years which they can fall back on in their twilight years. The main retirement savings scheme today is the provident fund. In India, the number of elderly (persons aged 60 and above) is expected to increase by 107%, to 113 million by 2016.
New Pension System: To usher in a modern system of pension, the Pension Fund Regulatory and Development Authority (PFRDA) was set up in October 2003; the New Pension System was introduced in January 2004 and PFRDA Bill in March 2005.
NPS is designed for scalability, outreach, fair play and low cost, and provides a variety of options to a contributor. But NPS has been crippled from the start due to a variety of reasons—the legal framework is not ready, implementation has been poor, there are no incentives for distributors to sell NPS, etc.
NPS was supposed to be based on modern principles of asset allocation and portfolio management and also forced long-term savings which people are unable to do on their own. How is it that a product, beneficial for the masses and available at a low cost, fails to attract interest from the public? The NPS story is typical of what happens when policymakers fail to take into account the behavioural patterns of investors as well as their changed life circumstances. Currently, India is in a favourable position to implement beneficial policies for the elderly. As the Japan Centre for Economic Research projected in a report, while for most Asian nations, elderly people will become an ‘onus’ within the next five years, India still has time till 2035.
But if our government continues in its characteristic lackadaisical fashion, we will have a huge problem when the youth of the nation grows old. In the USA, the baby boomers generation planned for their retirement well in advance. India, strangely, continues with its habit of not taking a long-term view and failing to implement policies like the NPOP.
Three areas that need special attention are—firstly, training for care-givers who specialise in geriatric care and the licensing of agencies that provide such care-givers need to be encouraged through appropriate policy measures.
Secondly, there needs to be a policy framework and regulation for new concepts such as retirement townships, since seniors who invest in these are putting in a big chunk of their life’s savings in it and would have nowhere to go if such homes are mismanaged or shut down.
Thirdly, new products, such as reverse mortgage, which allow senior citizens to extract the value of their homes while living in them (to augment their income or have spending money), need further refinement. Recommendations
From Moneylife Foundation Position Paper on “Financial Issues Faced by Senior Citizens”
Uniform age: The age of 60 should be made uniform for each and every benefit available to senior citizens across all ministries/departments of state and Central governments. Any of the following should be sufficient as age proof: birth certificate, PAN card, passport, senior citizen card.
Taxation:
• There is a need to have a simple certificate stating that the beneficiary of an income source is not liable to pay income-tax. These days, except for bank and post office savings accounts, companies deduct TDS on interest payable on debentures, which then requires senior citizens to file protracted claims for refund of tax.
• The best way to simplify non-deduction of tax at source would be to put the details of a senior citizen on a centralised database, to eliminate paperwork in respect of each deposit.
• Since the TDS would have already been credited to the exchequer and therefore can be taken up for a refund (or a tax return) only in the relevant assessment year, the assessee is forced to declare income far in excess of the actual amount credited to the Income-Tax Department. The assessee is also forced to pay tax on income not received and claim refund for tax deducted, just because Form 16(A) says so. The government needs to look into this issue. Those who have only limited funds will end up paying extra tax on income which they have not received in the first place.
• Standard deduction for senior citizens should be introduced to help mitigate medical expenses.
• A large percentage of Indians rely on Public Provident Fund (PPF) as their retirement saving option. The change from Exempt-Exempt-Exempt (EEE) to Exempt-Exempt-Tax (EET) in the proposed Direct Taxes Code (DTC) will be very harsh on senior citizens; and hence should be avoided.
• The DTC should raise the exemption limit for senior citizens to Rs3.5 lakh.
• The interest income on fixed deposits of senior citizens should be subject to exemption under Section 80 (C) of the Income-Tax Act up to a sum of Rs1 lakh.
New Pension System:
• The annuity component must be brought down to 20% from 40%.
• The balance 20% must be allowed to be invested in fixed-income bonds for senior citizens. • Annuity income must be made tax-free.
• Agents should be incentivised to sell the NPS.
Health insurance:
• Senior citizens (age group 60-85 years) must be eligible for Mediclaim policies.
• Access to insurance as well as the claims procedure should be simplified. Single-window dealing is essential. The agent who has sold a policy should also be responsible for helping the senior citizen file her claims and any other dealings with the company. If the agent quits his job, the case file should be taken over by designated employees of the insurance company.
• Senior citizens who have been in the insurance system for a long period should be allowed to increase their cover, keeping in mind the increasing cost of healthcare.
• Health insurance plans, like the erstwhile ’Bhavishya Arogya‘ scheme, should be promoted to encourage dedicated savings towards future healthcare needs.
• It would be useful if a reverse mortgage loan is bundled with mediclaim/health insurance policy.
National Policy for Older Persons (NPOP):
• The NPOP needs to be broken up into smaller parts and implemented in stages. NGOs and the private sector must be given responsibility to implement sections in which they have domain skills. For instance, large infrastructure firms could take up building of long-term care homes. They could be offered tax benefits.
• There should be transparency in fund allocation and utilisation by all ministries which are currently implementing schemes for senior citizens.
• There must be a budgetary provision for NPOP (both at the Central and state levels).
• NPOP should be converted into a National Commission for Senior Citizens on the lines of the National Commission for Women. This will give the policy the required teeth and budget.
Financial abuse: A financial literacy campaign should be launched by government agencies or with their support. Banks, insurance companies and mutual funds should hold free seminars for their clients who are senior citizens.
.jpg "MoneyLife")
