Importance of old-age pensions

Jean Dreze 

It was a new experience, last summer, to go from village to village with student volunteers and listen to elderly women and men. Our main purpose was to understand how pension schemes for widows and the elderly worked in different States (Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Tamil Nadu and Uttar Pradesh to be precise). Testimony after testimony has opened our eyes to the critical importance of old-age pensions as a pillar of social security in rural India.

The first thing that struck me was the immense number of elderly people, and their miserable plight. They escape our notice most of the time, but if we have an eye out for them, they spring up everywhere. They live quiet and unobtrusive lives, some passing time on a broken charpoy, others collecting twigs, limping from one place to another, or simply lying ill in the darkness of a shabby backroom. They rarely complain — at least not in public — but if you enquire about their well-being, the tales of sorrow are endless.

It is not just in poor households that widows and the elderly have a hard time. Even in relatively well-off families, money is always in short supply, and the comfort of the elderly often takes the back seat. We met plenty of women and men who lived a life of deprivation even as their adult sons built good houses or rode motorcycles.

Whenever public meetings were called to talk about social security pensions, elderly women and men came out of their houses in large numbers to join the discussion. Those who were not receiving a pension pleaded for help to apply. Pensioners, for their part, complained that the pension amount was far too low. Even so, they clung to their bank or post-office passbooks as they might precious possessions. In their harsh lives, the pension was a chance to enjoy small comforts — relieving their pain with some medicine, getting their sandals repaired, winning the affection of their grand-children with the odd sweet, or simply avoiding hunger. 

Small leakages, but no big scams
The main insight from the survey was the basic soundness of pension schemes as a tool of social security and economic redistribution. Most of the recipients are, by any standard, deprived people who need social support — and indeed have a right to it. Aside from contributing to their economic security, pensions give them some dignity and bargaining power. The administrative costs are very low. Last but not least, the survey (which included verifying pension records in 160 sample villages) did not find any evidence of major fraud in pension schemes. There are leakages here and there, for instance when post-office employees take a cut to disburse pensions, but nothing like the scams that plague many other forms of government expenditure. And the leakages, such as they are, can be dealt with quite easily.

Having said this, pension schemes for widows and the elderly have five major flaws as things stand: narrow coverage, bureaucratic procedures, low pension amounts, irregular payments, and high collection costs.

To start with, the coverage of pension schemes is too narrow. According to Central guidelines, social security pensions are meant for “below poverty line” (BPL) families; financial support from the Central government is restricted to this category. Some States have launched their own schemes, with their own funds, to expand the coverage of pensions beyond BPL families. But the bulk of pensioners are selected from the BPL category. The unreliable and exclusionary nature of this eligibility criterion is now well understood in other contexts.

In the context of pensions, it is all the more inappropriate, because widows and the elderly are often extremely deprived even in relatively well-off households. BPL targeting should be abolished in favour of a universal or near-universal approach, whereby any widow or elderly person who does not meet well-defined exclusion criteria (such as having a government job) is eligible for a social security pension.

Second, application procedures tend to be very cumbersome. Numerous supporting documents have to be produced, and it often takes years for applications to wind their way up and down different layers of administration — Gram Panchayat, Block, District, State and back. In Latehar district (Jharkhand), we learnt from the Sub-Divisional Magistrate that pension applications were being forwarded to the State government at a snail’s pace simply because he had to sign each application six times. With about 13,000 applications pending, that meant 78,000 signatures, for this purpose alone. He was blindly signing application forms even as he was talking to us, without, for all that, making much of a dent in the backlog.

Third, the amounts of social security pensions are ridiculously low. The Central contribution to old-age pensions has remained at an abysmal Rs. 200 per month since 2006 —an insult to the dignity of the elderly. Some States top this up with their own resources, but even the topped-up amounts are measly, except in a few States like Tamil Nadu where the standard pension amount is now Rs. 1,000 per month. Pension amounts should be increased without delay and indexed to the price level.

Fourth, pension payments are highly irregular in most States. Often, pensioners have to wait for their pension for months, without having any idea as to when the next payment will materialise. This defeats the purpose of old-age pensions, which is to bring some security in people’s lives. More than ten years have passed since the Supreme Court ordered State governments to ensure that social security pensions are promptly paid by the 7th of each month, but few States have acted on this.

Fifth, even when payments are relatively regular, collecting them is often costly and tedious for old people with little mobility, education and power. Going to the nearest bank and queuing up there for hours can be an absolute ordeal for them.

Post offices are closer, but the convenience comes at a price — corrupt post-office employees often expect an inducement. Alternative options such as postal orders, business correspondents and cash payments pose their own problems. The Central government’s odd insistence on fast-tracking the transition to “UID-enabled” payments of social security pensions (one of the least appropriate applications of this problematic technology) is likely to be very disruptive — “UID-disabled” may well turn out to be a more accurate term in this case. 

Signs of change
All these problems are easy to fix. The main reason why it is not happening is that the people concerned count for so little. But this is changing: widows and the elderly have started agitating for their rights, with a little help from associations such as Ekal Nari Shakti Sangathan and Pension Parishad. Under public pressure or for other reasons, many States have started improving and expanding their pension schemes — Odisha, Tamil Nadu, Rajasthan, among others. Even Bihar and Jharkhand, the incorrigible laggards in such matters, are developing a serious interest in pension schemes.

Odisha, no paragon of good governance in general, presents an interesting case of a State which has put in sustained effort to strengthen pension schemes. Eligibility conditions have been relaxed and the coverage of pensions has been extended well beyond the ambit of Central guidelines. The lists of pension recipients are updated regularly and posted on the internet. Pensioners have well-designed and well-maintained passbooks with details of pension payments. Last but not least, pensions are promptly paid in cash at the Gram Panchayat office on the 15th of each month — even on August 15. This arrangement, very convenient for pensioners, is strictly enforced and appears to work very well.

The Central government, for its part, seems unable to get its act together on this issue. The need to put social security pensions on a sounder footing is well accepted in principle, and useful recommendations for this purpose have been made by an expert committee. However, little has been done to implement these recommendations — not even raising the Central contribution to old-age pensions above the paltry Rs. 200 per month. The “savage cuts” (as Union Minister Jairam Ramesh called them) in social expenditure sought to be imposed by the Finance Ministry are not going to help matters. The axe of fiscal austerity weighs most heavily on the poor and powerless, including destitute women and men who are expected to get by with Rs. 200 per month even as prices go through the roof.

(Visiting Professor at the Dept. of Economics, Allahabad University)