Needed : A Better Deal for OAPs

According to the World Bank any person having to exist on $2 a day ($60 per month) is deemed to be living in extreme poverty, that is on the international breadline! At $3 per day ($90 pm), he joins the ranks of the “merely poor.” But when a person is on $2 a day, even a rise of 50 percent (pc) in his income has minimal effect on his general well-being, or his life prospects.

Subsumed among the poor and the extremely poor is a large number of elderly—that is people who are aged 60 or more. However owing to a dearth in official data, it is notoriously difficult to gauge even approximate numbers; although on a priori grounds these must be substantial. Observers like Porter note that “Poverty rates in old age are missing from international data sets in at least 93 countries.” Over half of these are to be found in Africa.

The BRP

In Mauritius the size of the elderly population (OAPs or old age pensioner) is +200k; and each one of them is entitled to the basic retirement pension (BRP) of R5.45k ($150) a month. Unfortunately a large unquantified number of these rely entirely on the BRP to survive. Genuine hardships are particularly felt by those retired men whose wives are still to reach 60, the eligible age for the BRP. Because, when we divide the husband’s BRP by 2, their income amounts to $75 each. This squarely puts them in the “extreme poverty” category.

It is obvious that generous as the government (GM) makes it sound, R5.45k is nowhere near adequate. Consequently 25 pc of retirees take up a job in the informal sector, or start a micro-business to make ends meet. Those whose physical/mental conditions that inhibit them from doing any kind of paid work have to rely on hand-outs from their children. Childless people or those with children who do not or cannot help are left to subsist on the sidelines of life.

Poverty among the elderly cannot be overstated. Unable to afford many basic things, they often go without or try to get it for free when possible. Thus many old people are found scouring the local fruit and veg markets at dusk for damaged unsellable stuff that the stall-holders have left behind. Normally these would be swept by the dustmen and taken to the rubbish dump but, to a poor OAP, a few broken tomatoes garnered here are good enough for a rougaille. Equally the better part of a half-rotten apple or orange is good enough to serve as dessert.

Surveys

In a world where the number of elderly is on the increase, we need to have regular surveys of the financial positions of OAPs, particularly as they tend to be the least vociferous of citizens. In addition they keep being told that they should be grateful for whatever GM is giving them And grateful they are indeed: “Sarkaar mai-bap is kind and generous to give us this much” is an expression that is often heard at OAP club meetings. Unlike the working population, they do not have a trade union to lend voice to their cause. With the results of proper surveys, the authorities should be able to better target hardship payments.

Pension funding is another major problem, even in advanced countries. In MRU the problem is compounded because no one actually makes any direct contribution towards the BRP; nor does GM encourage or coerce them to do so. If ever the question is raised, the stock answer is that anyone can contribute to the NPF if he so wishes. But when we are young and healthy, the last thing on our minds is pension provision for old age. Besides many people do not realise that they can get a better GM pension by contributing to the NPF.

Over the years a number people have suggested that GM should make it compulsory for every citizen over the age of 18 to contribute to the NPF, the quantum and contributory period to be determined by actuaries. This would bring us nicely into line with more advanced countries like the UK and the EU and, provided the premium is pitched at an appropriate level, should result in an enhanced BRP.

Works Pension

So much for the poor OAPS who rely entirely on the BRP to live. But what of those pensioners who also receive a works or private-funded pension?

As the rules stand, any single person is exempt from income tax on the first R295k of his overall income, including the BRP. To the pensioner who is on the basic R5.45k, R24.5k a month may seem a fortune. But it has to be remembered that this represents only 50 pc of the income that the individual used to earn just before retirement and, as we all know, people’s expenditure often tends to rise to the level of their income. Thus a rapid, often painful financial adjustment follows retirement; nothing will ever be the same again, the OAP realises!

Out of the R24.5k, there is sometimes (an average) rent of R10k to pay, leaving R14.5 with which to pay for everything else. I know of several elderly people whose monthly medical expenses alone average out to R5k, notwithstanding the free treatment and medication received from the NHS. As we all know, not all treatment or medication is available at GM medical facilities. With the remaining R9.5, the OAP must pay for food, utilities, clothes, sundry items and—having been used to one—the cost of running a car. One can easily infer that not a lot is left at the end of the month!

Obviously something has to be done for this category too.

The UK & India

At present, the UK has a very low Repo Rate (RR) of only 0.25 pc. The miniscule size of the base rate has spawned a running joke that depositors may soon have to pay interest to their bankers. Even with GBP1m in the bank, there is hardly any earnings. As a result many an OAP is having to delve into his capital to survive. And if the low interest regime persists, there may come a time when all the capital would have been depleted, leaving the OAP to survive on limited government pensions.

In order to alleviate OAP financial difficulties the Chancellor of the Exchequer has recently announced a special Scheme which will be launched in the Spring this year. From that time onwards each and every OAP will be able to invest his money in a National Savings and Investment (NSI) account which will pay a fixed rate of 2.2 pc. In India where the current RR is 6.25 pc something similar is afoot; on New Year’s eve PM Modhi announced that OAPs will in future be paid 8 pc on savings up to a maximum of R750k.

In contrast, there is sadly no special provision in the pipeline to help the poor OAP in MRU. Against a RR of 4 pc, he currently receives a measly 2.5 pc on his savings, just like everyone else. This is barely enough to compensate for the rate of inflation. In real terms, therefore, the OAP is getting zero interest. Yes, Zilch! Set against a background where prices are constantly on the rise, the logical conclusion must be a fall in OAP living standard.

A New Scheme

To be fair, in 2014 under the previous Governor’s tenure of office, the BoM did issue a special 6 pc 5-Year GM Savings Bond in which OAPs could invest a maximum of R500k for 5 years. With a Repo of 4.65 pc, this compared very well indeed with the UK/Indian models. But since the offer was for a limited period, funds invested in fixed instruments could not be switched in time. So some people may have missed out.

And after the departure of the Governor following the change of GM in Dec-2014, there is little sign from Sir William Newton Street of any new deal for OAPs, but hope reigns eternal. In these difficult times (when is it easy for them?) the elderly could do with a coup-de-pouce à la Bheenick.

Ramesh Beeharry