Published in livemint on 05 july 2019.
Two years ago, one Monday morning, when N.S. Swaminathan dialled into the usual conference call with various teams across the world, he was irritated to find no member had logged in. A globetrotting IT sector top executive, Swaminathan tapped his pencil in annoyance for some time, before reality broke on him—he had hung up his work keyboard the previous Friday. “I used to work for 16 hours a day and managed a large business unit of over 3,000 employees and suddenly there was nothing after retirement,” he said. Now, at age 62, Swaminathan still gets on the phone but to counsel children on their careers. Life has slowed down for Swaminathan, but is anything but dull. “Earlier I used to travel primarily on work. Now I take holidays with friends. When I go abroad, I explore cities and their cultures,” he said.
But amid all this, what worries Swaminathan is whether or not his retirement corpus is enough. “Being in the private sector, I don’t get pension. My needs have come down, but so has my income, but the cost of living is only increasing,” he said, adding that healthcare comprises a major chunk of costs for senior citizens.
He is not worried without reason. According to Himanshu Rath, chairman, Agewell Foundation, an NGO working for senior welfare, only about 35% of the elderly, including pensioners, are financially independent. In fact, many rejoin the workforce after retirement. “Even now, nearly 11% of the elderly population is working for survival and to support income,” said Rath.
Not surprisingly, India’s senior citizens look expectantly at every budget for sops and schemes that can put more income in their hands. Most of the time, the budget doesn’t disappoint them. But Pradip Roy Choudhury, 68, a retired Merchant Navy officer who lives in Chennai, feels the government can do more. “The percentage of tax-paying senior citizens is minuscule. So if you were to give greater tax benefits to them, it won’t impact revenues in a big way, but it will considerably improve the financial lives of many,” said Choudhury. According to Census 2011, nearly 8.6% of the population comprises senior citizens or individuals over age 60. There are about 130 million senior citizens, of which only 8.1% or 10 million pay tax, said Rath. “The elderly contribute nearly 6.36% of the GDP and are, therefore, important stakeholders,” he said.
While 65% of India’s population is below the age of 35, it’s expected that the proportion of India’s elderly will swell to 20% by 2050 and, according to Choudhury, the main concern of senior citizens is battling the cost of living.
According to Vinodh Rao, 71, a resident of Chennai and a former banker who currently works for an NGO that focuses on medical research, the income of the elderly needs to be treated differently. “I can understand that I have to pay tax on my salary, but then you work all your life to accumulate a retirement nest-egg and that too gets taxed. The interest in fixed deposits (FDs) and other financial products is taxable. Even pension is taxable,” he said.
Budget 2018 gave people over 60 higher deduction on interest income up to ₹50,000 from bank deposits (the number for non-seniors is ₹10,000 and only for deposits in savings accounts), but is that enough? “Even dividend income from equity is tax-exempt till ₹10 lakh. Senior citizens are risk-averse and like FDs, so the limit of ₹50,000 needs to be reviewed,” said Swaminathan. The NBFC and debt fund crisis has further reduced options for seniors.
Retirees from the unorganized sector are the worst hit as they don’t even have the Provident Fund to fall back on. The National Pension System (NPS) was designed to solve the problem for 87% of the Indian workforce that does not have any form of pension, but with just around 1.8 million subscribers today, it is far from universal. Neither the extra ₹50,000 deduction given in 2016 to NPS nor the tax-free status of the maturity corpus made much difference. One way to make NPS more palatable is to remove the tax on the annuity part. “Annuities need to be tax-exempt. Even the standard deduction of ₹50,000 allowed for salaried people and pensioners is not allowed against annuity income,” said Vasu Krishnan, 72, who is a part-time quality system auditor in Chennai. He works to supplement his income. “FDs don’t beat inflation, so I need additional income to support my lifestyle. Falling back on kids is out of the question for me,” he added.
The other big worry for seniors is medical costs. “My wife met with an accident and fractured her wrist and had to get a titanium plate. The procedure cost ₹2.75 lakh,” said Choudhury. While medical costs have ballooned, on an average, people have a health cover of ₹3 lakh, which is inadequate. “Retail health insurance is not very friendly towards senior citizens with a pre-existing ailment as most won’t issue them a policy,” said Kapil Mehta, founder, SecureNow.in. In fact, the equation changes as soon as one turns 60. “I had a health cover from before, but when I turned 60 years, my insurer put a co-pay clause,” said Swaminathan.
Currently, retail health cover doesn’t help senior citizens in a big way and there is a need to on-board senior citizens to government-funded Pradhan Mantri Jan Arogya Yojana (PMJAY). It is designed for the below-poverty-line population, and is remarkably better than a retail product because of minimum exclusions and maximum coverage. “If you also factor in health schemes such as CGHS for government employees or ECHS for defence personnel, nearly 70% of the population is covered. For the remaining 30%, not having insurance can create financial distress. The government should think about extending PMJAY to those over 65 as they are the most needy and are a relatively small proportion of the population,” said Mehta.
The government seems to be thinking on these lines already. According to Indu Bhushan, CEO, Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB – PMJAY), “In the sustainable development goal, financial protection needs to be given to all citizens and not just to the poor. PMJAY for the poor is a starting point towards universal health coverage. However, when we extend PMJAY to other sections, we will need to rework the costs and arrive at a cost-sharing arrangement as people who can afford to pay should contribute to the premiums,” said Bhushan. A cost-sharing arrangement will not only ease the fiscal burden on the government, but also allow individuals to access better medical care at a nominal cost.
The government needs to incentivize senior citizens by making retirement income tax-friendly and financing healthcare efficiently.
Published in livemint on 05 july 2019.