Pensions for elderly should be linked to real-value: Rajan

Posted on 23rd Feb 2015 by mohit kumar

Panaji, Feb 20 (IANS) RBI governor Raghuram Rajan Friday said that ideally, pensions for the elderly should not just be inflation-indexed but also indexed for real-value (which adjusts for the effect of inflation).

He said this while stressing the need for curbing inflation as it works as a tax against those in their twilight years.

Speaking during an ongoing lecture series here, the Reserve Bank of India (RBI) governor also made a case for equity-linked pension while admitting that as India gets richer, pension in the current form does not help preserve the status of an individual like it used to a decade ago.

"The government can create a minimal pension, which it has in a number of areas, especially for the very poorly off in society. But going forward we have to develop better methods of savings. Savings that ensure... that your pensions are not just inflation-indexed, but even real-value indexed," Rajan said.

He also said that to ensure that pensions are indexed at real value, linking the pension corpus to equity was important.

"So in those kinds of saving plans I think some amount of equity is very important," Rajan said.

The top official also admitted that in contemporary India, with its upward rising economic trajectory, mere pensions could not alone could not guarantee the same economic solace as they used to in the past.

"But there's another aspect to pensions which are a source of concern for the elderly, that is the country is becoming richer so a pension today does not preserve the same status even if it is inflation indexed, that it would have got you 10 years ago because everyone else is moving ahead," he said.

Rajan said that it was imperative to arrest inflation, because it ended up taxing those in the twilight years of their lives.

"I hope that unlike China we will grow wealthy before we grow old. China unfortunately is growing old before it really gets wealthy.

"Hopefully, we will not face the same situation. So we should be prepared and therefore pensions I think are one extremely issue today," the RBI governor added.

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