What could be nobler than working towards bringing some economic security into the lives of people in the twilight of their life? The Ministry of Social Justice and Empowerment is entrusted with the task of caring for the old and the destitute. None other than Ms Maneka Gandhi who heads the ministry commissioned the Old Age Social and Income Security (Oasis) project for recommending a pension scheme for individuals. The ministry-appointed committee made a number of recommendations. The report notes that almost 89 per cent of Indian the workforce is not eligible to participate in any scheme that enables economic security in old age.

The number of the elderly, currently around 6.7 per cent of the population, is expected to swell to 8.9 per cent by 2016, and 13.3 by 2026. Social change such as the breaking up of joint families and changing social mores is increasingly leaving the elderly to fend for themselves. The state cannot provide for the old-age security of such large numbers.

The report believes that many people who are able to generate an income during their working lives sink into poverty in old age because of a lack of savings. What they lack, it says, are not the resources but the awareness.

If they are encouraged to make modest contributions during their working life they can provide for their old age. It seeks to ensure old-age security by providing for an easy collection mechanism and attractive returns.

Several remarks are in order. First, the proposed scheme is not mandatory, and is only for those who will turn old. Caring for those who are elderly now and those who will grey in the next 15-20 years still must be addressed.

Second, the scheme is targeted at middle class and working class people but does nothing for those below the poverty line.

Third, in middle-class families, the problem of old-age security is related to the intra-family distribution of resources between younger family members and the elderly. For these people it is not so much a lack of pension schemes (the LIC offers these) but the increased awareness of the need for planning for old age. To the extent that developing any market brings awareness of the needs a product satisfies, developing a pension market can do that job. But the proposed scheme is only one way of doing it. Since the report was commissioned by ministry of social justice and empowerment, presumably the concern is for people at the lower income rung for whom resources are the real problem.

To the extent that people at the lower-income rung can set aside some modest amount, promoting thrift is indeed commendable. But to assume that the saving would cushion their old age is misleading. Their present and immediate future is much more important to them and the savings are most likely to be used for their pre-retirement needs. Indeed, one can hardly talk meaningfully of retirement security for low-income people who continue to work well into their old age. Probably more than a pension scheme, they need credit and insurance that builds security into their working lives.

Typically, life insurance has both an insurance and a savings component. It provides financial security to the surviving family members of the policy holder. And if no claim is made the accumulated savings are returned to the family upon maturity. This lump sum can buy an annuity (life insurers are also the providers of annuity), which entitles a person to a pension until death. Hence, for these people life insurance makes better economic sense than old-age savings.

The Indian insurance industry is being reformed. Competition among insurance companies will bring greater awareness of the need for old-age security among the middle class. But providing insurance to the low-income people throws up the same challenges outlined by the Oasis report in the context of pension. It notes, "The challenge in building a pension system also lies in obtaining low administrative costs, nation-wide collection, and adequate simplicity for participation by millions of people with highly limited financial sophistication." It is hard to see why the much-touted features of simplicity, accessibility, attractiveness and investment choice to savers of the proposed scheme cannot be built into life insurance and annuity for low-income people.

Finally, insurance, annuity or pension all provide income security which is only one dimension of old-age security. The Oasis report deals with just this. The elderly also need minimum health care, housing, and emotional/psychological support. A genuine old-age security scheme for low-income people ought to be context- and location-specific.

Rajiv Ahuja is a fellow at the Indian Council for Research on International Economic Relations (Icrier)