INFLATION may be on a sustained downward trend and interest rates are being cut as a result, but cutting the returns on national savings schemes should be avoided.
The government has already slashed the returns on many NSS instruments, although thus far the reductions are marginal in size.
Everybody knows NSS instruments are used by the pensioners and others in their old age who have no other source of income, and expecting them to take a cut in their standard of living because the discount rate is being slashed or CPI inflation is coming down is unfair.
Neither of these economic indicators have much bearing on their lives, which is squeezed enough as it is with no other reliable savings instruments available on the market.
By squeezing out all avenues to reliable investment of their savings, the government basically creates an environment that forces small savers into the hands of speculative sharks, like stock brokers and property developers.
With few if any choices for stable returns, retirees and pensioners are more likely to be tempted by the speculative opportunities offered in these sectors.
This not only exposes them and their nest egg to dangers they are not equipped to understand, it also results in a wasteful deployment of the country’s investible resources.
The voracious appetite for informal pyramid schemes, for example, stems from this paucity of options for reliable savings. An economy that forces its pensioners, widows and older generation more generally into the hands of speculative sharks is not one that we should aim to build.
Already the amounts being placed in NSS have been dropping precipitously since November of last year, indicating that a large flight from stable savings instruments has occurred.
Other savings instruments have had withholding taxes imposed upon them. The government should find other avenues to stabilise its fiscal accounts rather than targeting the largely voiceless community of elders that most needs these instruments to live their lives with dignity and some modicum of comfort.
Published in Dawn, October 5th, 2015
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