NPS: New age solution for elders

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All over the world raising income opportunities for the elderly is a concern for policymakers. In India, it is more so since senior citizens are one of the most vulnerable groups due to shifting social patterns such as nuclear families as well as financial stringencies. On the financial front, senior citizens are constantly squeezed between steadily declining interest rates and inflation. While declining rates are dictated by the needs of industry seeking cheaper capital, inflation above or near the ceiling of the RBI tolerance band of 6% is attributable to the abundance of liquidity in the market offered to fuel growth in the economy. Therefore, the search for higher yet stable returns has become a permanent quest among senior citizens.

While schemes such as Public Provident Fund, Senior Citizen Savings Scheme and Vaya Vandana Yojana offer better returns than FDs, National Pension System returns are far better since it is linked to the market. Last week the regulator PFRDA has taken a welcome step by raising the age of entry to NPS. While anyone between 18 and 65 years could join the self-funded pension scheme, last week the age of entry has been relaxed up to 70 years. This is a positive development that will allow numerous senior citizens to join the scheme even at a late age.

The number of people who get government pension is very low in India, making it important that the citizens save in pension systems such as NPS and Atal Pension Yojana (APY) that is more focussed on the bottom of the pyramid. The number of people enrolled for NPS is only 4.35 crore while that in APY is 3.13 crore. One can enter APY only till 40 years of age. That leaves out only NPS as the only avenue to save for both a lumpsum and annuities.

Though the need to save for retirement is a recurrent theme in the discourse for financial independence, very few actually make disciplined investments into pension systems. Moreover, with life expectancy rising, ensuring income for the old age income is becoming more important.