A change in attitude and good financial advice could help senior citizens to plan for regular post-retirement income that is also tax-free
Speaking at the Moneylife Foundation brainstorming session on senior citizens' issues on Friday, Dr S A Dave (former chairman of SEBI, UTI and the committee on pension reforms) said that retirement planning needed to start earlier and it required attitudinal change, even on the part of senior citizens to relinquish dependency. On a personal note, he said, that the 60-plus age group is often referred to as the 'silvers' but he personally considers this a 'golden' period of his life, despite having gone through the usual medical issues including knee replacements, bypass surgery and cataract operations.
“We should start enrolling people as members of senior citizens not when they become the prescribed age of a senior citizen but when they become 45 years,” Dr Dave said. He said that we must emulate the US All American Retirement People (AARP) like system where its massive membership allows it to run its own insurance policy, pharmacy, hospices and also had powerful lobbying power with the government.
A change in attitude and good financial advice could help senior citizens could plan for regular post-retirement income that was also tax-free. He advised NGOs who attended the meeting to work jointly to be able to lobby effectively for specific actions and concessions but also work together to ensure a large membership that could put in place—facilities such as insurance, healthcare, hospices and other facilities there was independent of the government.
Dr Dave also pointed out that by 2015 more than 10% of India's population would be made up of senior citizens and we must all prepare for it. He advised NGOs to work with the corporate sector to publicise their work and enlarge membership.
The meeting saw active participation by a dozen-odd NGOs, every one of them with long years of experience of working on senior citizens’ issues. A common refrain among NGOs was the lack of proper thought and the non-implementation of the National Policy for Senior Citizens. It was pointed out by Dr Sheilu Srinivasan of Dignity Foundation that several tax changes proposed by the government are extremely harsh on senior citizens. "We strongly feel that in a country offering nil social security umbrella to elders", the government has to ensure secure, long term investment opportunities for its citizens, she said.
Mr B N Makhija, a former bureaucrat and civil society activist made the very pertinent point that the working lives of most senior citizens today were in the pre-liberalisation era, while their savings, which are to see them through their old age, are subject to new rules and volatility of the post-liberalisation regime, that too without any social security. Shailesh Misra of Silver Innings listed a series of issues that need to be addressed urgently and pointed out that even the age for deciding who is a senior citizen is not uniform—the ministry of social justice and empowerment has fixed it at 60 while the Finance Ministry has fixed it at 65.
Nagesh Kini spoke about the 25 May 2009 guidelines by the insurance regulator (a result of a landmark 2008 Supreme Court judgement) which will hopefully eliminate the adverse bias against senior citizens by categorising them as a separate risk class, thereby marginalising them and leaving them open to galloping increase in premium.
A big issue was the harassment caused through Tax Deduction at Source (TDS) and in the redemption/withdrawal of savings instruments such as post-office schemes and pensions.
The problems with insurance cover
The evening saw a detailed presentation on the new Reverse Mortgage Loan facility announced by the National Housing Bank, which is being offered by Central Bank of India along with Star Union Daichi Life Insurance—this scheme is a marked improvement over earlier versions and promises to give senior citizens a decent sum of money every month. However, as always, there are niggling issues over tax payable on this income, which need to be sorted out to make it workable.
Moneylife Foundation intends to consolidate all presentations and papers offered by all the leading NGOs working for senior citizens, so that a joint representation can be made to the government. These will cover issues relating to savings, pensions, tax deduction at source (TDS), wills, reverse mortgage, mediclaim and insurance issues.
Suggestions are invited from all organisations and individuals working in this space and can be emailed to [email protected]. The workshop was supported by Indiabulls Financial Services.
Pictures of the event
It has been nine weeks of continuous rally. The market is overstretched. A correction is due after Monday. The only question is, will the correction continue?
The market surged on strong retail data from the US on the last trading day of the week. Positive global cues were the driving force for the market on the beginning of the week also as the BSE Sensex touched its 25-month high on Monday with US unemployment holding steady at 9.7%. After two range-bound trading sessions, the market plunged on Thursday on concerns over the possible tightening of monetary policy. The food price index accelerated for the second straight session, rising to 17.7%, which is higher than an annual rise of 16.35% in the previous week. There is little choice left for the Reserve Bank of India (RBI) but to increase interest rates. The fuel price index rose by an annual 12.71% which is below the annual rise of 12.75% in the previous week. The RBI said that credit growth in India will be at 20% in FY11. Finance minister Pranab Mukherjee projected growth rate in FY11 to be at 8.75% in the twelve months from March reiterating a February finance ministry forecast. The finance ministry has suggested the simplification of the rules for calculating foreign investment in India. The proposed rule which takes out the sundry entries of indirect investment will be beneficial for companies with high foreign investments. The government initiative towards the GST (Goods & Services Tax) regime has started, with the Centre seeking opinion from the Supreme Court on the proposed amendments to the Constitution for implementation of the tax. Grain stocks as on 1st April stood at 42.8 million tonnes (MT), a figure well above the target. While wheat stocks were at 16.1MT against a target of 4MT, rice stocks were at 26.7MT, more than double the targeted 12.2MT.
US treasury secretary Timothy Geithner has said that India and the US should work together on “rebalancing” the world economy. In bilateral economic partnership talks, he said that cooperation by both parties will help to make the economy more stable. Rating agency CRISIL said that more Indian companies will be upgraded rather than downgraded in FY 2010-11. However, CRISIL said key risks that could affect credit quality include a global credit event on sovereign debt, impact of inflationary expectations on interest rates, and exchange rate volatility. The service industry grew at a slower rate in March after it touched a 17-month high in February. The HSBC Markit Business Activity Index, based on a survey of 400 firms, fell to 58.1 in March from 60.9 in February, which was its highest level since September 2008. The IMF agreed that the world economy’s recovery was at a faster pace than estimated, but it was still not out of danger.
The major part of the recovery is attributed to public support rather than private demand which is more important for sustained growth. The US Federal Reserve’s comment on the tightening of the interest rate regime to prevent an impending asset bubble took the US markets down on Wednesday. However, the Fed’s firm point on the need on extending the existing interest rate regime to help economic recovery brought the market back on track on Thursday. The World Bank’s buoyant sentiment about the East Asian economy was reflected in its forecast for economic growth in this region. In a semi-annual economic update, the World Bank said that East Asia will grow by 8.7% in 2010. This is an upward revision from the 7.8% growth it had estimated in November last year.
Some major tweaks to the NPS in addition to the planned government contribution of Rs1,000 per account are set to provide a much needed leg-up to the nascent pension scheme
The Centre is planning some additional tweaks to the still-nascent New Pension Scheme (NPS) to attract the investing public. Sources from the regulator, the Pension Fund Regulatory and Development Authority (PFRDA), tell Moneylife that these changes will provide a significant boost to the struggling pension plan initiative from the government.
The PFRDA is apparently in talks with the central record-keeping agency, the National Securities Depository Limited (NSDL) to reduce the cost of record-keeping. If NSDL obliges, it would significantly drive down the cost of maintaining an NPS account, which would enable thousands of low-income category people to start their own accounts.
An official from PFRDA revealed some of the initiatives being taken up. Deepa Kotnis, general manager, PFRDA said, “We are working on reducing the cost. For a very low-income person, the current cost might be a lot, even though it is the cheapest product available. We are also trying to incentivise enrolment by attaching some promotional incentive to it.”
Already, the NPS is among the least expensive investment products in the offering. With such low expenses, it is a product tailor-made for the requirements of the masses.
To encourage people to save in the NPS, the recent Budget had announced the government’s intention to contribute Rs1,000 per year to every new NPS account opened this year. The scheme, ‘Swavalamban’, will be extended to those who join NPS with a minimum contribution of Rs1,000 and a maximum contribution of Rs12,000 per year during financial year 2010-11.
Speaking to Moneylife, Ms Kotnis said, “This is a direct subsidy for investors. The finance minister has set aside Rs100 crore for this project. We are hoping that this would benefit lakhs of investors. There are a lot of low-income people in the unorganised sector who would be very keen to get this Rs1,000 benefit.
Ultimately, it would add up to Rs4,000 as the scheme is extended for three more years. So not only is this a much cheaper product, but there is a direct subsidy coming into the investor’s account. The onus is now on all the points of presence (POPs) to popularise this initiative and get people on board during this financial year.”
Interestingly, the PFRDA is also thinking of extending this benefit to all the existing subscribers who have invested prior to this financial year. Ms Kotnis said, “We do not want to leave out people who have joined the scheme last year. So we are working on how to ensure that these investors are also included. After working out who all would be eligible for this benefit, we will see to it that these people are also given the benefit.”
Finance minister Pranab Mukherjee had also urged State governments to make a matching contribution to these NPS accounts. Some States like Haryana and Karnataka have already started offering the added contribution of Rs1,000 per year. This has taken the total government contribution to Rs2,000 per year.
With these initiatives on their agenda, the government and the regulator are indeed taking the pains to ensure that the NPS finds its rightful space in the minds of the investing public.