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Recent efforts by the National Housing Bank (NHB) to popularise reverse mortgage loans (RMLs) in big cities are noteworthy, but they are not sufficient to address the economic needs of the elderly. RMLs promise a dignified existence to the elderly who possess a house, but do not have a regular income to sustain themselves. They can mortgage their house to a bank in return for an income stream of loan instalments. Most of India’s 4.7 million aged people (7.5 per cent of population in 2005), struggle to survive. With the number expected to rise to 141 million or 10.2 per cent of the population by 2020, the situation could get worse if a safety network is not in place.

It is necessary to go beyond RMLs, which will leave out the asset-less, to improve the situation. Despite savings constituting 34.8 per cent of GDP, most people have no savings or insurance to fall back on. According to a survey of savings patterns conducted by NCAER-Max New York Life, 96 per cent of the households feel they cannot survive beyond a year on their household savings if they lose their income. The study points out that only 24 per cent of the households in the country have life insurance cover; the coverage of health and other forms of insurance is even lower. As Reserve Bank Deputy Governor, Ms Usha Thorat, points out in a paper on the aged, financial inclusion will ensure better coverage and rule out leakages in pension payments. The paper observes that insurance reduces credit risk and allows greater flow of credit at lower cost.

To extend life insurance, health insurance, old age security and maternity benefits to the 422 million workers in the unorganised sector, pension reforms cannot be put off any longer. A defined contribution system should become the norm for everyone above the poverty line so that the Centre can spare the resources to run a defined benefit scheme exclusively for the poor. The National Commission for Enterprises in the Unorganised Sector (NCEUS) has drawn up a scheme that can provide a floor-level social security to the unorganised sector at a cost of 0.48 per cent of the GDP at market prices after the entire workforce is covered. Application of information technology solutions will help contain administrative expenses. The Sixth Pay Commission, which has been generous in its pension award, should have also kept in mind the needs of the unorganised sector. Social security has remained the preserve of a few far too long. This should change.

More Stories on : Editorial | Housing Finance | Mortgage | Social Security

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