Financial System for the Elderly

The aged population of India (above 60 years) was 84.7 million i.e. 7.5 per cent of the total population in 2005. It is expected to rise to 141 million by the year 2020 and further to 194 million by the year 2030. Old age group is one of the lowest income groups of the country. Hence they require additional attention from the government and the society.

The old people should be self sufficient as in today’s time and ironically, they are among the most vulnerable groups in India. A dominant trend amongst Indians is usually to invest their funds in health, housing, education etc. and to save very little for the old age. Indians don’t take a long term view of security and hence saving for retirement does not generally figure in their scheme of things. Compared to other countries, saving for the old age in India is meager. Inflation some years back was high, but the sudden slump of inflation in 1998 reduced the benefits that the old could avail as interest on their deposits.

People should actually put their savings in those assets where interest rates are higher than the inflation rates. More than 50 per cent of the senior population of India is not happy with the behavior of their children and hence it becomes even more important to understand their needs and help them become them financially independent. High priority should be accorded to price stability. People should realize the importance of risk of outliving their assets, future cost of healthcare and the erosive power of inflation, which would make them save more. People should start saving early, ideally as soon as they start earning as the interest is compounded and they will end up benefiting in the process.

Thankfully, the government of India has recently taken certain measures to improve the financial system for the aged. First of all, there has been a change from defined benefit scheme to a defined contribution scheme. Senior citizens savings scheme is another measure; the old people can open their account at post offices and agency banks and get attractive interest rates on their deposits. Several facilities for pensioners is also available like the opening of joint account with spouse is allowed, pension slips are issued first time and whenever there is a change, to make the procedure more easy. Simplified procedures for automated transfer at time of death are also available.

There is an urgent need for a great financial inclusion that is putting assets safely which can be drawn easily. Un-banked population should be converted into banked. There should be a safe and reliable financial system for the old. Having said that, it is imperative that even the old people understand certain concepts properly before investing in any scheme – for example the concept of average quarterly balance. Card and pin shouldn’t be kept together, and shouldn’t be told to anyone no matter how close the person is. It should be remembered that no interest is payable on post maturity for most of the securities. A sound financial system for the elderly is the need of the hour so that they can live in sound comfort even once they retire.

Aparna Vyas

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