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Micro-Pensions in India: Critical Issues, Challenges and Strategies for Future Study for CORDAID, NETHERLANDS

By Ramesh S Arunachalam1

1 This is a working draft and please do not circulate or quote, without permission. Thanks. This is a study for CORDAID, NETHERLANDS. Special thanks to Mr Marc Van Der Linden of CORDAID for commissioning the study. We are grateful for his guidance and support.

Micro-Pensions in India: Critical Issues, Challenges and Strategies for Future

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Table of Contents I Executive Summary..............................................................................................................................6 1 Context and Background....................................................................................................................13 2 Unique Features of Indian Scenario...................................................................................................16 3 Pension Reforms and Associated Rationale......................................................................................16 4 Progress to Date on Pensions............................................................................................................18 5 Financial Inclusion and Micro Pensions .............................................................................................20 6 Defining Micro-Pensions and Objectives of Micro-Pension ...............................................................23 7 Micro-Pensions in India ......................................................................................................................25 7.1 UTI Micro-Pension Scheme ...............................................................................................................25 7.2 Old Age Security Scheme (OASS) of SIFFS – An Informal Scheme.................................................29 7.3 Micro-Pensions at SEWA Bank..........................................................................................................31 7.4 Other Efforts .......................................................................................................................................33 8 Comments on Micro-Pension Services and Schemes.......................................................................35 9 Differences between Micro and Traditional Pension Products ..........................................................36 10 Are MFIs Suited for Micro-Pensions?.................................................................................................37 11 Alternative Channels and Product Suggestions.................................................................................40 12 Technology Based Distribution of Micro-Pensions and Related Products.........................................42 12.1 IDBRT Solutions .................................................................................................................................42 12.2 FINO Pilot ...........................................................................................................................................42 12.2.1 Perceived benefits .....................................................................................................................44 12.2.2 Future possibilities .....................................................................................................................45 12.2.3 Unresolved Issues .....................................................................................................................45 13 Distributing Micro-Pensions - Key Issues...........................................................................................49 14 Regulating Pensions and Micro-Pensions .........................................................................................50 15 What the Future Holds for Micro-Pensions? ......................................................................................51 16 Discussion and Implications ...............................................................................................................52 17 Upscaling Micro-Pension Products in India: Strategies for the Future...............................................56 Annex 1: State Level Social Security/Pension Schemes for Low Income People (India) ..........................59 Annex 2: NCEUS Proposals for Micro-Pensions ........................................................................................78 Annex 3: The New National Pension Scheme and its Salient Features....................................................81 Annex 4: Political Parties and Their Stand on Pensions.............................................................................81 Annex 5: UTI Mutual Fund ties up with India’s largest bank.......................................................................82 Annex 6: Inauguration of Micro-Pensions at Shepherd ..............................................................................83 Annex 7: The Collapse of US 64.................................................................................................................84

List of Figures Figure 1: Unique Features of the India Setting ...........................................................................................16 Figure 2: India’s Social Security System.....................................................................................................22 Figure 3: Micro-Pensions – Mickles and Muckles.......................................................................................23 Figure 4: Generic Flow of Micro-Pensions..................................................................................................24 Figure 5: Flow of UTI Micro-Pension Scheme ...........................................................................................26 Figure 6: Flow of SIFFS OASS Scheme.....................................................................................................30 Figure 7: Process Flow of FINO..................................................................................................................44


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List of Tables Table 1: Challenges of Old Age and Associated Strategies for Overcoming These ..................................14 Table 2: SIFFS OASS Growth Details ........................................................................................................30 Table 3: SIFFS OASS Savings Statement, as of August 2007 ..................................................................31 Table 4: OASS Membership Details Across Federations ...........................................................................31 Table 5: Key Distribution Differences Between Micro/Traditional Pension Products .................................36 Table 6: Roles of Pension Fund and 3rd Parties like MFIs in Micro-Pensions............................................38 Table 7: Regular Micro-Pension Product ....................................................................................................41 Table 7b: Reverse Mortgage Product .........................................................................................................42 Table 8: Cost of IDBRT Solution.................................................................................................................42 Table 9: Comparison of Processes, Pre and Post FINO ............................................................................43 Table 10: Potential for use in Micro-Pension ..............................................................................................48 Table 11: Lessons from Experience For Building Efficient and Effective Micro-Pensions! ........................52

List of Boxes Box 1: Demographic and Related Trends in India ......................................................................................13 Box 2: Defined Contribution Versus Defined Benefit Schemes..................................................................17 Box 3: The Role of Third Parties in UTI Micro-Pensions ............................................................................25 Box 3b: Micro-pension aids life security of women.....................................................................................27 Box 4: Pension scheme for labourers in Rajasthan....................................................................................28 Box 4b: Worker Oriented Old Age Pension Schemes in Kerala.................................................................28 Box 5: Pension Fund Regulatory and Development Authority (PFRDA) - Press Release .........................34 Box 6: Advantages of a mobile network for Micro-Pensions ......................................................................47


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Abbreviations AP Andhrapradesh ATM Auto Teller Machine AUM Assets Under Management BoP Below of Poverty BPL Below Poverty Line CEO Chief Executive Officer CMF Centre for Microfinance CMPFO The Coal Mines Provident Fund Organisation CMR Consolidated Muster Rolls COMPFED Co-operative Milk Producers Federation Ltd Coops Cooperatives CPAO Central Pension Accounting Office CRA Central Record-keeping Agency CSOs Civil Society Organisations CSPS Civil Service Pension Scheme DA Dearness Allowance DB Defined Benefit DC Defined Contribution EDLI Employees’ Deposit Linked Insurance Scheme EMV Europay/Master/Visa EPF Employees’ Provident Fund EPFO Employee Provident Fund Organisation EPS Employees’ Pension Scheme FD Fixed Deposit FDI Foreign Direct Investment FINO Financial Information Network & Operations Ltd GCC General Credit Card GDP Gross Domestic Product GPF General Provident Fund GPF Government Provident Fund GS Gratuity Scheme HDFC Housing Development Finance Corporation HHD Hand-Held Device IASC International Accounting Standard Committee ICICI Industrial Credit and Investment Corporation of India IDBI Industrial Development Bank of India IDRBT Institute for Development and Research in Banking Technology IRDA Insurance Regulatory Development Authority IT Information Technology KTWWF Kerala Toddy Workers Welfare Fund KVIB Khadi and Village Industries Commission Board KVIC Khadi and Village Industries Commission KYC Kerala Youth Club LTS Long Term Savings MFIs Microfinance Institutions MFs Mutual Funds MIS Management Information System MP Micro-Pension NABARD National Bank for Agriculture and Rural Development NAV Net Asset Value NBFC Non-Banking Financial Companies NCEUS National Commission for Unorganised Sector NFC Near Field Communication NGOs Non-Government Organisations NPS New Pension System


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NREGA National Rural Employment Guarantee Act NREGP National Rural Employment Guarantee Program NSSB National Social Security Board NXP Next Experience OASS Old Age Security Scheme PC Personal Computer PDAs Personal digital assistants PFRDA Pension Fund Regulatory and Development Authority PO Post Office POS Point of Sale RBI Reserve Bank of India RD Recurring Deposit SBI State Bank of India SEBI Securities and Exchange Board of India SEWA Self Employed Women’s Association SHGs Self-Help Groups SIFFS South Indian Fishermen Federation Society SIM Subscriber Identity Module SS Sector Schemes like in Fisheries SSSB State Social Security Board STD Subscriber Trunk Dialing TCS Tata Consultancy Services TCSP Technical Committee on Security and Privacy TPPs Traditional Pension Products UBI Union Bank of India UTI AMC Unit Trust of India Asset Management Company VOR Village Organisation Representative VOs Village Organisations WAP Wireless Application Protocol WFCs Worker’s Facilitation Centres


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Micro-Pensions in India: Critical Issues, Challenges and Strategies for Future2 I Executive Summary 1. India is experiencing a demographic transition as a result of lower total fertility rates,

increased life expectancy and higher percentage of older people in the population. The share of elderly as a percentage of the working population, i.e., the old age dependency ratio, is increasing and will continue to do so. This exponential growth suggests that a large part of this ageing population will be affected by lack of pension coverage.

2. This is not exactly a positive happening as there are several challenges that old people face

while their means to overcome them are very few. The case for micro-pensions can never be argued more strongly as these people suffer dual oppressions – on account of being old and on top of that, being poor as well. Thus, an effective pension system is necessary in India whereby individuals will be able to obtain income support in their old age. Without question, a modern, well-regulated pension sector, with competent professional fund managers, will not only improve resource flows for the country but also enable older low income people to reduce their vulnerability.

3. There are several good reasons as to why pension reforms matter and must be undertaken.

First, India is making reasonable progress on poverty reduction for those who are productive and can work - there has been some reduction in the headcount of the poor since the 1990s. Second, in the years to come, it is very likely that the inclusive growth policies being pursued, could lead to further reduction of poverty among people in their working years. However, the aspect of old age support still needs attention because: (a) poverty amongst the elderly is becoming a major issue; (b) traditional forms of old age security are being eroded with urbanization, modernization and serious changes in social structure and values; and (c) life expectancies are increasing and hence, in the lack of productive economic activity of the usual kind, the elderly need strong support. And the above aspects are more critical for low income people as the better off and higher/middle income groups have other sources of support and coping mechanisms, which their contacts, status and money can buy. Hence, pension reforms matter very much for low income people and should be the central focal point of “second generation reforms in India.

4. As in the case of the microfinance (initially) and some other sectors, simple dole solutions

will not work in the area of micro-pensions. Having a sustainable and scalable pension system is the key as mistakes in pensions can destabilize the entire economy. This needs to be done quickly every year lost affects large numbers of people in a significant manner. Thus, the consequences are so dire, to the extent that if pension reforms do not come about now and today, India will face decades of difficult social and fiscal stress in coping with the consequences. And this will have a serious impact on millions of elderly, low income people in India.

5. Currently, there are some micro-pension schemes and the most well-known micro-pension

scheme in India is the UTI micro-pension scheme, which is was launched in 2005. UTI AMC has forged partnerships with SEWA (Self Employed Women’s Association), a micro finance institution based in Ahmedabad; COMPFED, a federation formed by milk producers in Bihar; Paradip Port Trust; and an urban cooperative bank run by women. Recent partnerships of

2 Study for CORDAID, NETHERLANDS. Special thanks to Mr Marc Van Der Linden of CORDAID for commissioning the study. No references are cited in the executive summary but full and complete referencing is available in the main text.


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UTI include SHEPHERD in Trichy, which the Hon Finance Minister inaugurated. The key characteristics of the UTI AMC micro-pension schemes are: a) contribution of small sum ranging from Rs. 50 to Rs. 200 per month; b) flexibility in payments (monthly or yearly contributions are not mandatory), and c) presence of a neutral third party, like an MFI, NGO, Cooperative, Self help groups (SHG) or an NGO, which performs the aggregator, administration and other roles. There was also a recent strategic tie-up between Bank of India (BOI) and UTI Mutual Fund for providing members of self-help groups with an investment opportunity through micro-pensions. If successful, this could help address the issue of relatively short life-span of most SHGs

6. Apart from the UTI micro-pension scheme, there are several other micro-pension schemes

and annex 1 of the paper lists details of 37 other micro-pension (or equivalent) schemes. Many of these schemes have existed in different states but they have had problems in Governance, Systems, Management and Transparency apart from other issues, which are commented upon later.

7. There is also a reasonably successful informal scheme, in the fisheries sector, which SIFFS

has been running as a long term savings scheme called as OASS – Old Age Security Scheme. As per the scheme, a sea going fisherman can get a pension from the age of 58 but he is required to save Rs 50 per month until then. SIFFS is presently managing the savings but is looking for a professional fund manager to help manage these savings in the long term. The scheme was started in 2001 as a part of the SIFFS microfinance program. The voluntary saving scheme has completed 7 years in July 2007 and it has been promoted very much in Tamil Nadu and Kerala region. At present there are 2717 members in the scheme with a total savings of Rs.37.48 lakhs. This saving scheme is intended to help the artisanal fishermen to accumulate a lump sum at the time of retirement from fishing. The salient aspects are:

• OASS is designed for the fishermen community as a long term pension scheme • Any person with membership in SIFFS society can join in the scheme but he has to

be an active sea going fisherman • Minimum eligible age to join is 18 years and up to retirement age of 60 • Multiples of Rs.50 can be remitted as premium amount (e.g., 100,150,200) • Penalty for defaulters exists and it varies by type of default/delinquency • Interest is at the rate of 9% on quarterly compounding basis • Option for withdrawal of deposit on death, membership closure but based on certain

conditions. 8. Several aspects appear to have helped SIFFS be successful in its OASS scheme:

• Long term trust of fisherman in societies • Long term trust of fishermen in their federations/SIFFS • Several other aspects including social acceptability of SIFFS and its member

societies/federations, availability of local information, a dedicated team of staff and other factors like a convenient product, which is priced well and distributed appropriately backed by good governance, transparent systems and prudent management.

9. At SEWA Bank, the vulnerable and insecure lives of most of SEWA Bank's clients’ have

meant that planning and saving for old age is often a last priority. Their lives are lived from day to day and saving for old age (or later years) is considered a luxury. It is in this context


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that SEWA Bank worked and developed a very useful pension product, with alternative options. The objectives of this product were: • Giving SEWA Bank Clients (All informal sector women workers) a certain degree of

security to look forward to in their old age • Encouraging SEWA Bank Clients to think about and plan for their future • Educating SEWA Bank clients about the need for old age financial planning and

providing them with choices and products in order to meet their old age income needs 10. The pension scheme has the following rules and regulations:

• Earliest starting age is 18 years and maturity age is 60 years; • Deposits for a minimum of 10 years, under any scheme is possible; • Withdrawal before 10 years is allowed but the interest rate is decreased at 1% per time; • Close of account is allowed after 10 years; • At the time of opening the account, the client presents a nomination in the case of death; • Interest rate regulation is as per RBI rules; • Account can be single or joint (2 clients). At the time of closing, the information given at

the time of beginning of the accounts will be considered; joint names are allowed to access the account;

• Necessary documents are:- Residence proof, Photo and initial amount (under the scheme) the options for saving deposits are(Rs.30, Rs.50, Rs.100, Rs.200, Rs.250, Rs.300, Rs.500);

• If the deposit installments are not paid within 3 months, the penalty will be decided by the board of directors at that time. If the amount by the time of maturity exceed Rs.20,000, the payment will be made by cheque

11. FWWB, which is a pioneer in building the MF sector in India, is also strongly involved in

micro-pension efforts. As an official FWWB document notes, “Over the years mF has been able to provide financial service such as credit & savings to women of low income households but it is yet to provide the safety net to these women and their families who are otherwise vulnerable to various risk factors. FWWB firmly believes that this safety net can be spread through various micro-insurance schemes and pension plans for which it encourages and facilitates linkages of insurance providers with its partner organizations.” FWWB has indeed played a very important role in the UTI AMC scheme, bringing linkages to institutions like SHEPHERD and other NGO/MFIs.

12. Likewise, IIMPS, which was established in November 2006 as a Private Limited Company

under the Indian Companies Act, 1956, is also promoting micro-pensions. IIMPS is driven by a Board of Directors who are leading domain experts in the areas of microfinance, public policy, pensions and financial markets. IIMPS is focussed on creating a scalable, sustainable and transparent environment in which millions of low income workers can confidently save for retirement. Over the next twelve months, IIMPS aims to achieve voluntary coverage of one million low income workers through partnerships with leading microfinance institutions and cooperatives that already deliver a range of financial services to large groups of low income workers. IIMPS has also decided to launch a series of parallel 'pilot' projects in collaboration with government departments and NGOs with the objective of reaching individual workers who are not members of MFIs or cooperatives.

13. An analysis of the various micro-pension/equivalent schemes on offer suggests the following

key aspects that need consideration in the future: (1) As of today, micro-pension products appear to be standard pension plans with some modifications rather than as a product


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designed exclusively for low income people. Thus, current pension systems do not provide required coverage/benefits; (2) There are very few fund managers; and (3) The fund management fees are quite high and need reduction. This apart, several other aspects require attention including: (a) Better understanding of the structure in the pay-out phase, with an evaluation of different options; (b) Enabling more risk-sharing options and arrangements; (c) Examining the feasibility of co-contributions by the government at the accumulation stage; (d) The issue of who (fund managers or clients), and in what proportion, should bear the costs of the services of the third parties needs further analysis; (e) The possibility of use of auctions to get the best deal in fund management, and (f) Several other aspects.

14. A standard pension product approach will not work here for low income people because

there are many key differences between traditional and micro-pension products and these have significant implications for design and distribution of micro-pensions and associated costs. There are several issues here: (1) First is the aspect of proximity of the pension fund manager to customers, which is closer in the case of traditional pension products (TPPs) than micro-pension (MP) products, whose clients tend to be far removed and less accessible; (2) Second, is the issue of awareness of the customers and their preparedness to fulfill contractual obligations (in terms of prompt contribution payments etc), again higher in case of TPP customers and lower for BoP clients; (3) Third is the issue of total value and unit transaction value, both of which are higher for traditional as opposed to micro-pension products; (4) Fourth, is the aspect of number of transactions, which is inordinately large for BoP clients as opposed to TPP customers; and (5) Fifth, is the aspect of higher transactions cost, arising out of the above, again much lower in case of traditional as opposed to micro-pension products.

15. Thus, micro-pension products have special characteristics, which makes design and

distribution naturally difficult. Specifically, a high level of post sales service is required year after year, which means higher costs of servicing clients. Also, commission structures have not afforded sufficient incentive either due to inordinately high costs (because of remoteness and lack of easy access to customers) and/or regulatory barriers. So, the question is how can various stakeholders address this and enhance distribution effectiveness, while at the same time being efficient.

16. Two aspects suggest that while MFIs may have a very useful role to play in distributing

micro-pensions, there are inherent differences between the Common Microfinance and New Micro-Pensions: a) Microfinance (loans/savings) are short to medium term products (1-3 years) whereas Micro-Pension is really a long term one. So, trust of individuals in the institution is very critical for Micro-Pension to take off and this trust must be backed by top class professional management over the long term; and b) Microfinance thrives mainly on group activity and peer pressure whereas micro-pensions will essentially have to be individual based.

17. Thus, as MFIs move towards individual lending, they should have systems suited to this.

But, even then, it is preferable that MFIs play a distribution/intermediary role and leave management of contributions to a professional fund manager, who can invest and manage the funds prudently in line with the extant regulations. Hence, while the case for using micro finance institutions that have passed due diligence process for micro-pension services is strong, MFIs must, in return, have good systems and experienced personnel, who can, with some basic training, market and administer micro-pensions.


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18. Another major channel through which micro-pensions could be spread are the post offices. They have established presence in interior areas and this outreach could be used to service low income clients with regard to micro-pensions. As government machinery and for other good reasons, post offices enjoy a high degree of credibility. While their personnel are experienced in handling small savings, they may need to be trained to service pension schemes. Moreover, the post office may need to offer more flexibility in terms of deposit timings and even perhaps doorstep collection services to ensure regularity of savings. An experienced asset management company should handle funds management, for and on behalf of post offices

19. Other alternative channels could include producer organisations, agriculture and other

corporates, banks, insurance intermediaries, telecom companies, retailers and others – they are keen to enter the market and need to be incentivised to extend (and distribute) coverage of client responsive pension services to low income people in a sustainable and scalable manner. Thus, it appears that a variety of channels, as given above, must be used to expand the coverage of micro-pensions and this alone can help achieve the immense goal of covering 10 to 20 million poor people in the future.

20. Further, as in insurance, where insurers and intermediaries have integrated technology into

the front-end insurance processes that are close to customer, the same could be attempted in micro-pensions. Apart from impact on cost reduction, the use of technology has helped insurers and intermediaries alike to overcome disadvantages of distance, remoteness and high transactions time/effort. In the future, as decentralization of insurance claims management, based on value and complexity of the claims, is likely to occur, technology is expected to play a far greater role in enhancing service, reducing costs and expanding access to hitherto un-reached customers. Many of the same aspects could also be tried in the case of micro-pensions.

21. Much of the motivation for integrating technology in Microfinance/Micro-insurance has been

the reduction of transactions cost and time/effort and the same can happen in micro-pensions as well. Notwithstanding the above, it is argued that, the use of technology like above to enhance efficiency in delivery of financial and related services like pensions is an aspect that is worth exploring further.

22. Thus, the distribution channels must suit customers. They should deliver what clients want in

a way that will reach them. To provide cost-effective services to low-income clientele, the channels need to: • Adopt a suitable institutional and distribution structure that is suitable for today and can

be adapted for tomorrow. This is keeping in mind the long term nature of pension products

• Keep administrative costs low by using technology, outsourcing some functional responsibilities and leveraging existing infrastructure for distribution – the key is to synergise and share resources but manage pensions independently. This is very crucial

• Use a distribution system that is familiar and comfortable to the customers – people have good will towards and trust the existing field workers and loan officers. This must be encashed as pensions require clients to understand and feel that the organization will indeed survive in the long run and be available to support them in their time of need

• Provide good service whereby the intermediary responds quickly and responsibly – often reassuring clients of safety, returns and some liquidity


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• Set up an effective collection system to minimize or prevent internal control lapses and also establish systems to ensure that controls and guidelines are properly followed in distribution

• Do not mix distribution activities and thus avoid entangling pension contributions and credit risks – pensions must be managed separately and clients need to be assured and reassured that their pension contributions and/or savings will not be taken over, even if there is a delinquent loan payment

23. In terms of product substitutes, reverse mortgage (that converts housing equity into

retirement consumption schemes) is another product and channel that can be considered. The 2007-08 budget has proposed that the National Housing Bank consider such an instrument.

24. With regard to regulation, micro-pensions represent a long-term financial contract, with

significant potential for agency and other problems, and systemic risk to the financial system. Due to the sensitivity of the population, the contingent liability is on the Government. Thus, there is a strong case for regulating pension and micro-pension separately. In fact, Pension Fund Regulatory and Development Authority (PFRDA) should consider forming a separate division for micro-pension due to its unique nature and reasons given above, and closely coordinate with RBI, SEBI, IRDA and NABARD so as to reduce regulatory arbitrage and bring coherence to pensions and micro-pensions sector. These regulators, along with the Ministry of Finance, should ensure financial stability by minimising systemic risk, and enabling the progress towards goals of financial inclusion.

25. Thus, the time for pension reforms with a role for the State as a facilitator, in creating new

institutions and in fostering their sound functioning, especially with a focus on micro-pensions is perfect. The key features of such a system would include scalability, outreach, fair play and low cost, choice, sound regulation, sustainability and coverage

26. Viewed from the above, the future of micro pension, as a distinct stream within micro-

finance, depends on several actions and aspects and these are outlined below 27. First, if micro-pensions are to be added as a service, the highest standards of governance,

systems and management and transparency would be required of MFIs. The focus would be on enhancing the quality of governance, financial and accounting systems, MIS, record keeping internal audits, risk management and several other aspects. As a measure of caution, only those MFIs which have strong systems of voluntary savings, including small savings accounts, FDs, RDs etc, could qualify for distributing micro-pensions as in this case clients need to trust the institution more rather than vice versa

28. Second, microfinance institutions and non-governmental organizations must alter their

perception of pension funds as sources of long-term capital for institutional use because this puts elderly clients’ benefits at risk. Microfinance is a volatile business with significant covariant risk in livelihoods of poor people and redeploying pension contributions for internal lending must be avoided at all costs. Otherwise, the hard earned money of the poor could be lost.

29. Third, at client level, by and large, the level of financial literacy is rather low with regard to:

old age savings, estimating the lump sum required, functioning of mutual funds, facilities of modern financial markets, making investment decisions, understanding inflation and other financial planning knowledge


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Thus, to create natural demand and ensure a good future for micro pensions, the staff of the MFIs, NGOs, banks and the team leaders of the Self help groups, must be able to explain ideas of financial planning, risk, yield and all above aspects to poor clients, in an easy and transparent manner. So, capacity building in the above areas would be required for most MFIs. This is an area for future work and needs to be attended to first before micro-pensions can be distributed by MFIs and/or equivalent organizations.

30. Fourth, strong political will backed by administrative, financial and infrastructure support 31. Fifth, at the level of individual MFIs, a very significant improvement in record keeping and

MIS, with a focus on individual record keeping. This apart, MFIs must imbibe a mindset towards servicing individuals rather than groups.

32. Lastly, a wide range of stakeholders need to be incentivised to support the micro-pension

process so that maximum value accrues to the low income people. An important step here lies in reducing management fees and costs through auctions and other actions like proactively educating a large proportion of the population about the need for savings, old age security and pension. And of course, this must all be backed by simpler products and schemes, competitive offerings, leveraging of technology and high quality of services/services delivery. This alone can help scale up micro-pensions in India.

33. And as a measure of caution, it seems prudent to sign off by pointing out several learnings

from the micro-finance sector for micro-pensions (and their introduction) and this is done below. Hence, while upscaling micro-pensions, it seems important to recognize and address contextual factors, in India, such as the following: • The large size and diversity of the country is an aspect and micro-pensions would have

take into account social, cultural and economic factors as well as infrastructure that vary considerably across various regions in India

• The division of power and responsibilities between Centre and States in many ways impede implementation and this has to be understood and accounted for in any product for the poor

• Deep-rooted perceptions of social status, that place many categories of the rural and urban poor (Dalits, Tribals and others) at the bottom of the hierarchy, thereby limiting (effective) ways of reaching them – social exclusion

• The lack of strong mechanisms of institutional learning, as a result of which there are no consistent means of incorporating lessons learned into new practice or policy

• The prevalence of strong behavioural norms across the hierarchy, mainly in civil service and to some extent in private sector, including the pursuit at all levels of what may be locally inappropriate targets and the rigid interpretation of norms/systems, leaving very little room for manoeuvre, the absence of substantive rewards linked to performance and especially, in responding to clients’ needs, frequent transfers, and reluctance to serve in what are perceived to be punishment postings


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1 Context and Background3 A significant change has been taking place in the demographic structure of various countries. Their populations have been ageing. Till recently it was thought to be a problem of the developed countries, but it is now a concern of the developing countries as well. India is also experiencing a demographic transition as a result of lower total fertility rate, increased life expectancy4 and higher percentage of older people in the population. As Box 1 below suggests, the share of elderly as a percentage of working age population, i.e., the old age dependency ratio, is increasing and will continue to do so. This exponential growth suggests that a large part of this ageing population will be affected by lack of pension coverage’5.

Box 1: Demographic and Related Trends in India6

• Total employment in the Indian economy: 457 million. Unorganized Sector: 395 million (86% of workforce); Organized Sector: 28 million (14%) (January, 2005, NCEUS). More than 85% of all rural workers get wages below the minimum standard of Rs.66 per day. As per the Hon Supreme Court, all those who do not get statutory minimum wage should be presumed to be treated as bonded labor. There is a lack of comprehensive protection of minimum work conditions as well. This has serious repercussions across socio-economic dimensions.

• India currently houses more than 260 million people under the Poverty Line which amounts to around 26.1% of the total Indian population and they have no serious social security. If we look at the number of people surviving on less than $ 1 per day, the figure should exceed 300 million

• The proportion of the elderly (or persons aged 65 years and above) in India’s population is expected to rise to 9% in 2030, up from 4.6% in 2000. In numerical terms, the number of people above the age of 60 will rise to 100.8 million by 2010, up from 87.5 million in 2005. By 2030 this number is projected to touch 200 million and by 2050, this should further increase to 330 million.

As Table 1 (next page) and subsequent discussions suggest, this is not exactly a positive happening as there are several challenges that old people face and they have very few means for overcoming these challenges. The case for micro-pensions can never be argued more strongly as these people suffer dual oppressions – being old and on top of that, being poor as well. It is in this context that this paper explores the issue of micro-pensions, in India and it looks at critical issues in the nascent pension/micro-pension sector and also highlights lessons and strategies by which micro-pensions can be scaled up to meet the needs of a growing number of low income people

3 The author gratefully acknowledges the several works of Prof Asher and Dr Ajay Shah, which were extremely useful in writing this paper. 4 As Asher (2007) and others argue, “Increased life expectancy means that each elderly person will require support for a longer period. In 2005, an Indian man reaching 60 years of age can on an average be expected to live for another 17 years and an average woman 18 years. This is expected to increase even more due to advancements in healthcare. Uncertainty about the pace of increase has major implications for annuity markets and for health insurance. The increase in the number of aged who are predominantly ‘non-productive’ raises not only a social but also an economic problem. By 2030, India’s per capita income will be relatively low. If the current normal retirement age of 60 is not increased, then the challenge of financing the elderly will be even greater. As women are increasingly living longer than men; greater feminization of the population is taking place (Liebig and Rajan, 2003). Providing secure and sustainable old age income therefore ranks high in the social priorities. Presently, only about a fifth of India’s 460 million strong labour force and about a quarter of its 90 million elderly benefit from at least one of the components of India’s social security system.” 5 Several experts suggest this including Asher et al, (2007) ”Time to Mainstream Micro-Pension in India” 6 CMF Data and other sources including NCEUS


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Table 1: Challenges of Old Age and Associated Strategies for Overcoming These7

Generic Challenges

Specific Issues Descriptions

Small regular stream of cash

• For most of the people, meeting basic needs of food, shelter and clothing is the biggest challenge in old age.

• The issue is not high cost of consumption but to find planning to ensure a small and steady cash flow to meet these basic needs.

• This problem is more acute in the low income group.

Inability to invest funds properly

• Those people privileged enough to retire with a pension from a company or the government often receive a lump sum.

• In many cases, lack of knowledge on investment opportunities or of business acumen leads to the loss of the whole amount within a very short time.

Economic Challenges

Access to credit, health insurance and medical services

• The aged are often willing to shift to some work/business that demands less physical labour.

• As a result they may want credit (and related products like reverse mortgage) to start a business but lack the necessary collateral in the form of assets or savings. This is true for most Low Income Clients

• Older people need access to some form of health/medical services, as their health is rather weak/fragile. Access to risk/vulnerability reduction products like health insurance could also be useful

Excess financial costs

• In some cases, the shifting of much of the responsibility for taking care of children to the grandparents - who themselves are often in old age and have meagre income – is a problem. In such cases, elderly are faced with the task of again raising children and finding money for clothes, food, school fees etc

• Medical expenses also tend to burgeon at old age

Social Challenges

Social Challenges

• At old age, the lack of engagement in work makes people feel unwanted, a problem often exacerbated by the disintegration of extended and traditional family structures, which have left parents and grand parents often uncared for.

7 Compiled from several sources and discussions including documents on old age risks and security


15

In terms of preparing for old age, the poor use several strategies including: • Investment in Assets (Cash or kind (Land/House), pension cum mortgage, etc.) • Investment in Children – that is often why poor have many children • Save Cash (Different options) • Informal Groups • Other Strategies like Reverse Mortgage As Pal (2004) notes, “Little is known about the living conditions of a growing number of elderly in India most of whom tend to co-reside with their children, especially sons. The lack of research in this area partly reflects the general belief that these elderly are well looked after by their children. Using the recent NSS data we examine the living arrangements of the elderly in rural India. A comparison of average per capita consumer expenditure between elderly persons in different living arrangements suggests that adjusted APCE are higher in households where elderly persons co-reside with children than living otherwise. In the absence of any better indicator of the well-being of the elderly, those co-residing with children are better off than those living otherwise in a society where there is no tradition of extra-familial welfare institutions. While co-residency with children is a social convention in India till today and APCE is higher for elderly co-residing with children, analysis of co-residency with children tends to suggest that the latter cannot by itself be regarded as a sufficient means of old age insurance. In particular, our results raise concerns for the elderly who lack wealth, health or both or disadvantaged in other ways, e.g., widowed/separated elderly women. Public policy on ageing in developing countries has tended to emphasise the welfare requirements of older populations, ignoring the wider dimensions of livelihoods in old age. The prevailing emphasis on pension schemes for formal sector workers and on individual contributions to pension funds, as outlined by the World Bank in 1994, excludes the majority of older people in poor countries who live and work outside the formal sector and lack the capacity to save. Basic non-contributory pension schemes, designed as an integral part of India government’s poverty reduction programmes, are most likely to target the increasing numbers of poorer elderly people, though the pronounced inter-state disparity in this respect needs to be addressed8.”

8 Source: Adapted from Sarmistha Pal (2004), “Do Children Act As Old Age Security in Rural India? Evidence from an Analysis of Elderly Living Arrangements”


16

2 Unique Features of Indian Scenario Thus, as suggested above and diagrammed below, the problems of old age income security in India are rooted in a different context9 when compared with other countries. The key aspects are highlighted in Figure 1:

Figure 1: Unique Features of the India Setting

3 Pension Reforms and Associated Rationale The Western solution to the problems of the aged has been old age homes, pensions, social security and health care while in India, systematic thinking as to what should be the policy towards aged has just begun. In the years to come, poverty amongst the elderly could be the dominant form of poverty in the country, especially, given the breakdown of the joint family, increasing life expectancy, greater migratory flows of labour, and the limited effectiveness of poverty-alleviation programs – such as employment guarantee schemes – in targeting the elderly10. Thus, an effective pension system is necessary in India whereby individuals will be able to obtain income support at old age. Without question, a modern, well-regulated pension sector11, with competent professional fund managers, will not only improve resource flows for the country but also enable older low income people to reduce their vulnerability.

9 Compiled from several sources including Ajay Shah, (2006 ) “Indian Pension Reform: A Sustainable and Scalable Approach” David A. Kelly, Ramkishen S. Rajan, and Gillian H. L. Goh, editors, Managing globalisation: Lessons from China and India, chapter 7. World Scientific 10 Several experts argue the same and experience in India is a almost unanimous on this 11 As some experts note, The pension sector can also be a major customer of insurance companies for converting a stock of pension wealth at retirement date into a flow of monthly pensions in the form of ‘annuities’.

Demographic Transition

Breakdown of Traditional Support

Structures in Families

Fiscal Problems of the State

Huge Mass Poverty

Dominant Informal Labour Market

Well Developed Financial Sector

Limited and Constrained

Administrative Capacity

Stable Political Democracy

Unique Features of the Indian

Setting


17

Box 2: Defined Contribution Versus Defined Benefit Schemes

Pension schemes can typically be classified as a defined contribution (DC) or defined benefit (DB) schemes. “In a DC scheme, while contributions are explicitly defined, benefits are not. This is because the risks associated with investing them, and then converting them to a regular retirement income stream are borne by the individual members. In contrast, in Defined Benefit (DB) scheme, the benefits to be provided are explicitly stated, while contributions are left undefined. In a DB scheme, it is the plan sponsor which bears the investment, mortality, and other risks. In any Defined Contribution (DC) pension scheme, there is an accumulation phase as well as a pay-out phase. “During the accumulation phase, a member of a DC plan or an annuity purchaser12 contributes towards accumulating balances. The value of such accumulation depends on the amount of contributions (for a DC plan, covered wage level determines the contribution rate) less pre-retirement withdrawals plus returns (net of investment management expenses) obtained from the investment of funds less applicable taxes. It is usual for administrative expenses to be borne by the members collectively. These however need to be transparent and benchmarked13. “ In fact, there are several good reasons as to why pension reforms matter and must be undertaken. First, India is making reasonable progress on poverty reduction for those who are productive and can work - there has been some reduction in the headcount of the poor since1990s. Second, in years to come, it is very likely that the inclusive growth policies being pursued, could lead to further reduction of poverty among people in their working years. However, the aspect of old age support still needs attention because: (a) poverty amongst the elderly is becoming a major issue14; (b) traditional forms of old age security are being eroded with urbanization, modernization and serious changes in social structure and values; and (c) life expectancies are increasing and hence, in the face of lack of productive economic activity of the usual kind, the elderly need strong support. The above aspects are more critical for low income people as the better off and higher/middle income groups have other sources of support and coping mechanisms, which their contacts, status and money can buy. Hence, pension reforms matter very much for low income people and should be the central focal point of “second generation reforms in India15.

12 As Asher (2007) notes, “An annuity provides for a systematic liquidation of a capital sum. It is distinguished by a variety of features such as how the funds are invested, when annuitized payments are scheduled to begin, and how they are paid for (Shapiro and Streiff, 2004, p. 2). The mortality risk is the main risk faced by the life insurer, while investment risk is the main risk in provision of annuities. The increased life expectancy therefore reduces life insurance costs, but increases the annuities cost, i.e. lower annuity benefits for a given capital sum. The risk profile of those voluntarily seeking annuities increases if there is significant adverse selection problem, i.e. those who are especially likely to live longer constitute disproportionately large proportion of the demand for annuities.” 13 Asher (2007) “India’s Innovative Pension Plan” and Asher et al (2007). 14 According to several authors, experts and field data, Poverty amongst the elderly will then become the dominant form of poverty in India, for three reasons: 1) the elderly do not generally work for wages; 2) there is rise in migration and flows of labour across places; and 3) The breakdown of the ‘joint family’ means that the elderly are less likely to live with their children at old age. 15 Planning for old age is directly related to the well being of thousands of informal and other sector workers. By enhancing savings and fostering high quality investment decisions, pension reforms will help India attain higher and more inclusive GDP growth.


18

As in the case of Microfinance and other sectors, simple dole solutions will not work16. Having a sustainable and scalable pension system is the key17 as mistakes in pensions can destabilize the entire economy18. This is the right moment and every year lost, hurts the welfare of people19. Thus, the consequences are so dire, to the extent that if pension reforms do not come about now and today, India will face decades of difficult social and fiscal stress in coping with the consequences. And this will have a serious impact on millions of elderly, low income people in India20. 4 Progress to Date on Pensions “On August 23, 2003, the government decided to introduce a new restructured defined contribution pension system for new entrants to Central Government service, except to Armed Forces, in the first stage, replacing the existing defined benefit system. Subsequently, the New Pension System (NPS) was operationalised from January 1, 2004 through a notification dated December 22, 2003. The main features of the NPS are21: • It is based on defined contribution. New entrants to Central Government service contribute

10 per cent of their salary and dearness allowance (DA), which is matched by the Central Government (Tier-I).

• Once the NPS architecture is fully in place, employees will have the option of a voluntary (Tier-II) withdrawable account in the absence of the facility of General Provident Fund (GPF). Government will make no contribution to this account.

• Employees will normally exit the system at or after the age of 60 years. At the time of exit, it is mandatory for them to invest 40 per cent of the pension wealth to purchase an annuity to provide for lifetime pension of the employee and his dependent parents and spouse. Remaining 60 per cent of pension wealth will be paid to the employee in lump sum at the time of exit. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, mandatory annuitisation would be 80 per cent of the pension wealth.

16 “A government program that seeks to pay a dole of Rs.25 per day to 10% of the population would incur a fiscal cost of 4% of GDP, excluding administrative costs. 17 With a formal sustainable and scalable pension system, individuals would save in their working years, and thus command personal pension wealth, which would ensure they avoid poverty in old age. While it is possible to design non-scalable subsidy-based programs which work for a few people and run these for a few years, this is an unsatisfactory solution. The critical need is a system which reaches a large proportion of the population, focusing on below-median incomes, for the next 50 years. This would be a real scalable and sustainable solution. 18 As compared with other aspects of economic policy, the pension sector is unusual in that mistakes in policy do not show up for a prolonged period. But when it does, it can easily generate fiscal impacts in terms of percentage points of GDP. Many advanced countries – where economic policy is ordinarily executed competently in areas such as foreign trade or infrastructure – are now labouring under pension-related debt of over 100% of GDP. What are apparently micro issues in the pension sector have a disconcerting way of turning into macroeconomic challenges for the country, further ahead. Hence, policies in this area need to be subjected to extremely searching scrutiny, to ensure that difficulties in pensions do not derail India’s growth over the next 50 years. This would be unfair to the future generations as well 19 “India is at a remarkable point in its demographic transition. In the period from 2005 to 2030, a substantial decline in the dependency ratio is expected, with a large number of people coming into their working years. This constitutes a historic opportunity to create a pension system in time for these people, who can be empowered to enjoy decades of life in their elderly years using personal control of pension assets. In addition, as of 2007, India has the required institutional capacity for building sound institutions in the pension area, which was not available about 2 decades ago. An early effort in pension reforms is thus essential, so that prudent institutions are in place in time for young people coming into the labour force. The “power of compounding” implies that every additional year matters greatly in building up pension wealth. A person who loses an opportunity to put Rs.2,500 into a pension account at age 20 can lose pension wealth of roughly Rs.25,000 at age 60. Every year of delay implies that millions of people may be unable to cross the poverty line in old age.” 20 The views expressed in this paragraph are cited from Ajay Shah, (2006 ) “Indian Pension Reform: A Sustainable and Scalable Approach” David A. Kelly, Ramkishen S. Rajan, and Gillian H. L. Goh, editors, Managing globalisation: Lessons from China and India, chapter 7. World Scientific 21 Source: Adapted from “Economic Survey 2006-07”, Government of India


19

• The new system will have a central record keeping and accounting infrastructure and several fund managers to offer investment options with varying proportions of investment in fixed-income instruments and equity.

• The new system will also have a market mechanism (without any contingent liability) through which certain investment protection guarantees would be offered for the different schemes.

An interim regulator, the Pension Fund Regulatory and Development Authority (PFRDA) was constituted through a Government resolution dated October 10, 2003 as a precursor to a statutory regulator and became operational from January 1, 2004. Till the architecture is fully in place, the Central Pension Accounting Office (CPAO) under the Controller General of Accounts is acting as the interim Central Record-keeping Agency (CRA). Contributions are currently being credited into the public account earning a return equal to the GPF rate. As per data available, about 137,952 employees are covered under the NPS. Approximately Rs.200 crore, including Government contribution, has been credited into the pension account. The Pension Fund Regulatory and Development Authority Bill, 2005 was introduced in Parliament on March 21, 2005. The Bill proposes that the main mandate of PFRDA is to regulate the NPS, as amended from time to time by the Central Government. Pension schemes already covered under the Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 and other enactments would be specifically excluded from the regulatory jurisdiction of PFRDA. However, individuals covered under such mandatory programmes under other Acts can voluntarily choose to additionally participate in the NPS. PFRDA will establish the institutional architecture of the NPS including the CRA and pension funds. It will also frame investment guidelines for pension funds. PFRDA is empowered to impose stringent penalties for any violation of the law. The regulator will also create a special fund, which will be used for educating and protecting the interests of subscribers to schemes of pension funds. The Bill was referred to the Standing Committee on Finance. The Committee presented their report in Parliament on July 26, 2005 recommending: 1) allowing withdrawal from Tier I account also; 2) specifying in clear terms in the Bill that one of the pension funds would be from the public

sector; 3) giving preference in selection to such pension fund managers that guarantee returns and

spelling out the pre-requisites relating to capital structure and experience criteria for selection of pension funds and other intermediaries in the Bill;

4) making available to subscribers an option of 100 per cent investment in Government securities and indicating this in the Bill;

5) implementing any decision relating to permitting FDI in the pension sector only by way of suitable amendments in the legislation; and not allowing such decisions and decisions relating to deployment of pension funds outside the country to be at variance with related provisions applicable to the insurance sector

6) setting up a Pension Advisory Committee similar to the Insurance Advisory Committee of IRDA;

7) rephrasing clause 4 of the Bill to clearly depict the composition of the Authority; selecting members of the Authority only from amongst professionals having experience in economics or finance or law; and having a Central Government nominee as one of the part-time members;

8) including the differentiation between Tier-I and Tier II accounts as a part of the basic or essential features of the New Pension System in clause 20 of the Bill; and


20

9) bringing forward a comprehensive legislation in order to cater to the social security of the unorganized sector, inclusive of pension coverage of the workforce, simultaneously with the setting up of PFRDA as a statutory body.

A proposal to amend the PFRDA Bill, 2005, based on the recommendations of the committee is under Government’s consideration. The Ministry of Finance convened a conference of Chief Ministers and State Finance Ministers on January 22, 2007. Majority of the State Government participants generally welcomed the move towards a fiscally sustainable pension system for civil servants and the establishment of an old age income security system for all Indians. Following the lead of the Central Government, 17 States have notified a defined contribution pension system for their new employees. In the conference, States were assured that the PFRDA Bill will be amended to provide an option for investing 100 per cent of pension funds in government securities, entrusting the job of fund management initially only to public sector fund managers, etc. The investment pattern for non-government provident funds, while conservative and restrictive, would be adopted as an interim model, pending the passage of the PFRDA Bill”. Annex 3 summarises the new pension scheme and its salient features.” 5 Financial Inclusion and Micro Pensions Before we start talking of micro-pension systems, it is first important to understand financial inclusion and India’s overall social security (Figure 2) system and place micro-pensions within that context. “The Mid-term Review22 of Annual Policy Statement of RBI for the year 2005-06 while recognising the concerns with regard to the banking practices that tend to exclude rather than attract vast sections of population, urged banks to review their existing practices with a view to aligning them with the objective of financial inclusion. In many banks, the requirement of a minimum balance and charges levied, although accompanied by a number of free facilities, deter a sizeable section of population from opening/maintaining bank accounts. With a view to achieving the objective of greater financial inclusion, all banks were advised in November 2005 to make available a basic banking no-frills account either with nil or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. The nature and number of transactions in such accounts could be restricted, but made known to the customer in advance in a transparent manner. All banks were also advised to give wide publicity to the facility of such a no-frills account, including on their websites, indicating the facilities and charges in a transparent manner. With the objective of ensuring greater financial inclusion and increasing the outreach of the banking sector, it was decided in January 2006, to allow banks to use the services of NGOs/SHGs, MFIs and CSOs as intermediaries in providing financial and banking services through the use of business facilitator and business correspondent models. The guidelines issued in January 2006 mainly related to: i) eligible entities and scope of activities under business facilitator and correspondent models; ii) payment of commission/fees and other terms and conditions for these entities; iii) redressal of grievances; and iv) compliance with the KYC norms. Banks were advised that under the business facilitator model, they could use intermediaries such as NGOs, farmers clubs, cooperatives, community based organisations, IT enabled rural outlets of corporate entities, post offices, insurance agents, well functioning panchayats, village

22 RBI Annual Report, 2005-06


21

knowledge centers, agri-clinics/agri business centres, krishi vigyan kendras and Khadi and Village Industries Commission (KVIC)/Khadi and Village Industries Commission Board (KVIB) units, for providing financial services, depending on the comfort level of the bank. Banks were also advised that under the business correspondent model, NGOs/MFIs set up under the Societies/Trusts Acts; societies registered under the Mutually Aided Co-operative Societies Acts or the Co-operative Societies Acts of States; companies mentioned under Section 25 of the Companies Act, 1956; registered NBFCs not accepting public deposits and post offices may act as business correspondents. Banks were advised subsequently that the selection/use of NBFCs as business correspondents may be deferred. The Reserve Bank advised banks that they may pay reasonable commission/fee to the business facilitators/correspondents, the rate and quantum of which may be reviewed periodically. As the engagement of intermediaries as business facilitators/ correspondents involves significant reputational, legal and operational risks, banks were advised that due consideration should be given by them to such risks. Banks were also advised that they should endeavour to adopt technology-based solutions for managing the risks, besides increasing the outreach in a cost effective manner. Banks were advised to constitute grievance redressal machinery within the bank for redressing complaints about services rendered by business facilitators and correspondents and give wide publicity about it through electronic and print media. The name and contact number of the designated grievance redressal officer of the bank were required to be made known and widely publicised. Banks were also required to place on their websites the grievance redressal procedure and the timeframe for responding to the complaints. If a complainant does not get satisfactory response from the bank within the stipulated time from the date of lodging the complaint, the complainant has the option of approaching the Banking Ombudsman concerned for the redressal of grievances. Banks were further advised that compliance with KYC norms will continue to be their responsibility. Since the objective is to extend savings and loan facilities to the underprivileged and unbanked population, banks were advised to adopt a flexible approach within the parameters of guidelines issued on KYC from time to time. In order to ensure that the banking facilities percolate to the vast sections of the population, banks were advised in December 2005 to make available all printed material used by retail customers, including account opening forms, pay-in-slips, passbooks etc., in trilingual form, i.e., English, Hindi and the concerned regional language. With a view to providing hassle-free credit to banks customers in rural areas, the guidelines on general credit card (GCC) were issued on December 27, 2005” As an expert notes, “Expanding the population with access to financial services i.e. financial inclusion is one of the priorities of the Reserve Bank of India and this is very good. Likewise, the provident and pension fund organizations and the pension regulatory structures should promote financial literacy and financial inclusion and create an enabling environment for growth of micro-pensions”. And here starts the case for vigorously pursuing and offering micro-pensions.


22

Figure 2: India’s Social Security System23

23 Compiled from several sources including Asher (2006) and others

India’s Social Security System

EPFO

Schemes

Civil Service

Schemes

Public Sector Enterprises (Usually DB Schemes)

Occupational Pension

Schemes (traditionally DB but significant

shift to DC) Voluntary

Advantaged Schemes

Schemes for Un-

organised Sector

Micro-Pension DC

Schemes

EPF-DC

EPS-DB

EDLI

Central Governm

ent

State and Local

Government

GPF - DC

GS CSPS-DB

GPF - DC

Pension products of Life Insurance

Companies

Small Savings

Schemes

National Assistance Schemes

State Assistance Schemes

Welfare Bodies

NGOs Family and Community

Group Insurance

MFIs, Unions, SHGs, Cooperatives,

Societies and Trusts

Other Social

Security Scheme

Micro-Insurance

Microfinance Loans and

Savings

Insurance Companies,

MFIs and Others

Commercial Banks, RRBs, Coop Banks, Mutual Benefit MFIs

and others GS SS CSP

S-DB

GS - Gratuity Scheme Coops – Cooperatives CSPS - Civil Service Pension Scheme MFs - Mutual Funds NGO - Non-Government Organizations SHG - Self Help Groups SS – Sector Schemes like in Fisheries

Abbreviations Used DB - Defined Benefit DC - Defined Contribution EDLI - Employees’ Deposit Linked Insurance SchemeEPF - Employees’ Provident Fund EPS - Employees’ Pension Scheme GPF - Government Provident Fund EPFO - Employee Provident Fund Organisation


23

6 Defining Micro-Pensions and Objectives of Micro-Pension In very broad terms, micro-pension is any arrangement24 that builds up assets for old age income of poor people. As shown in figure 3, a typical micro-pension product is typically designed as a defined contribution scheme. The product is basically a long term voluntary savings product accumulated over a long period to yield returns at a later date. These savings are typically managed by a professional fund manager and invested appropriately in financial/capital markets. At a pre-agreed withdrawal age (58 - 60 years), the accumulated balance can be withdrawn in a lump-sum, phased withdrawal, annuity or some combination of these methods.

Figure 3: Micro-Pensions – Mickles and Muckles

In the words of Stuart Rutherford, a senior microfinance practitioner, micro-pensions are a series of small payments (Mickles) over one’s life to provide for either a large payment (Muckles) or series of small payments (Mickle) or combination of both (muckles and mickles), at old age. Further, industry experts suggest that there are two typical objectives of such micro-pension systems: (i) reducing poverty and eliminating the risk of rapidly falling living standards at old age, and (ii) protecting the elderly from economic and social crisis. As one industry observer remarked on micro-pensions, ‘India needs a micro-pension scheme, which achieves the above objectives for low-income people and with the following characteristics: • Self-sufficient and sustainable; • Universally accessible, especially to the uncovered large numbers of unorganized sector

workers on a voluntary basis; • Affordable, efficient and available throughout the country; • Equitable, pro-labour and pro-poor; and • Well-regulated in an appropriate enabling environment.’ A generic design of micro-pensions is described in Figure 4.

24 Reverse mortgage is also equivalent of a pension product.

Until Age 55

Micro-Pension as lump sum, phased withdrawal, annuity or combination

At 58 or 60 years….

Micro-Savings for 25 to 30 Years

Pooled savings are invested and managed by fund managers


24

Figure 4: Generic Flow of Micro-Pensions

Pooled Savings

for Investment

Pension Fund

Managers - Choice through Auctions

Micro-Pension Aggregator and

Distributor MFIs, NGOs, Post Offices and Others with key features/ and systems

Urban Community

Groups And Others

Farmers

Clubs

Traditional Microfinance

Groups

Informal Worker

Associations

Rural Affinity Groups

Local Organisations

Individuals

Investment and Management of Pooled Savings - Equity - Debt - Real Estate - Other

Options - Maximize

Returns and Minimize Risks

“Micro-Pension Distribution”

Governance, Management, Systems, Transparency, Efficiency and Quality


25

7 Micro-Pensions in India 7.1 UTI Micro-Pension Scheme The first micro-pension scheme with UTI AMC as the fund manager was launched nearly in 2005. UTI AMC has since forged partnerships with several intermediaries/third parties: SEWA (Self Employed Women’s Association), a micro finance institution based in Ahmedabad; COMPFED, a federation formed by milk producers in Bihar; Paradip Port Trust; and an urban cooperative bank run by women. Recent partnerships of UTI include SHEPHERD in Trichy, which the Hon Finance Minister inaugurated (see Annex 6) The key characteristics of the UTI AMC micro-pension scheme, whose process is given in Figure 5, are: a) contribution of small sum ranging from Rs. 50 to Rs. 200 per month; b) flexibility in payments (monthly or yearly contributions are not mandatory), and c) presence of a neutral third party, like an MFI, NGO, Cooperative, Self help groups (SHG) or an NGO, whose typical roles are described in box 3

Box 3: The Role of Third Parties in UTI Micro-Pensions ‘The third party like an MFI or NGO performs several roles. First, they are aggregators for generating a large number of pension fund members with common characteristics; Second, they undertake several administrative roles; and Third, they act as conduits for free flow of communication, between pension fund and members. Third parties typically help in reducing transactions costs by identifying (captive market) members, collecting contributions, and record-keeping. It imperative therefore that the third party enjoy the strong trust and confidence of members as well as be competent in administration and financial matters - both of these need to be maintained or enhanced over the long term. Increasing supply of effective and efficient third parties is therefore critical to expanding the reach of micro-pensions25 ’ Further, there was a recent strategic tie-up between Bank of India (BOI) and UTI Mutual Fund for providing members of self-help groups an investment opportunity through micro-pensions. This initiative26 could perhaps help address the issue of relatively short life-span of most SHGs but its impact on transaction costs and financial viability need to be empirically determined27. Currently, while the UTI AMC micro-pension scheme has been operational for some time, feedback is being sought by the intermediaries and hopefully, it will feedback into product and process design. Box 3b below oulines one such recent meeting that was held in August 2007

25 Asher (2007) and several others including media have dwelt on these roles of third parties/MFIs/NGOs etc 26 Please see Annex 5 27 Asher et al (2007)


26

Figure 5: Flow of UTI Micro-Pension Scheme

UTI Mutual Fund makes pension payments after a person has attained age 58.

Unlike in the case of regular pension plans, there is no entry load. But a high exit load of 1% is levied if amounts are withdrawn before the agreed upon retirement age.

Flexibility in payments (monthly or yearly contributions are not mandatory), and presence of a third party, such as MFI, cooperative, self help group (SHG) or an NGO

• A maximum of 40% of the corpus can be invested in equity and the balance invested in debt.

• The target appears to be an annual return of 10 to 12 % after all expenses.

• 2) For managing micro-pension funds, UTI AMC charges management fees in range from 1.75% to 2.5% of assets

Identification of Members

Contributions ranging from Rs. 50

to Rs. 200 per month per member, but they need not

be made every month/year

UTI payment of pension – lumpsum or phased withdrawal or annuity or

combination

Intermediated by 3rd party

Administrator

Figure 5: Flow of UTI Micro-Pension Scheme

Enrollment, training and

preparation of members

Training and Capacity Building support to Third Party by UTI Mutual Fund.

Pension reaches individuals

Roles of partners • Collection of monthly/yearly contributions

from individual members. • Pooling savings for transfer to UTI • Provide a unique account number to

members

Individual contributions are made until age 55 and several individuals

do it on a year after year basis

Third party is aggregator and roles include: Generating a large number of members with

common characteristics for particpation Undertaking administrative roles Acting as a two way channel of communication and

ensuring smooth flow Reducing transactions costs involved in identifying

members, collecting contributions, and record-keeping

Other functions, as appropriate


27

Box 3b: Micro-pension aids life security of women

TIRUCHI: Five months after the launch of micro-pension by the UTI-Mutual Fund for the members of Self-Help Promotion for Health and Rural Development (SHEPHERD), an interface on ‘financial literacy for social protection’ gave a platform for the member-women, mostly from unorganised sector, to voice their feedback on micro-pensions and discuss about other viable financial securities. In the meeting on Saturday with the Chief Executive Officer of Friends of Women’s World Banking, Vijayalakshmi Das, and the Managing Director of Self-Employed Women Association (SEWA) Bank, Jayashree Vyas, the women were told about the small scale insurances and the monetary cushions they could rely on later in lives. In her address, Ms. Vyas said that the savings of 30,000 women associated with SEWA through micro-pension, in tie-up with UTI-MF, has added up to two-and-half crore in a year. And their returns have shot up to 13.5 per cent. Schemes such as micro-pensions and insurances would add to the life security of the women in the unorganised sector. Claiming SHEPHERD as the only NGO in the country to have introduced micro-pension, Ms. Das said the amount, when paid periodically, would not create financial shortfalls in their everyday budget but could prevent them from debt trap at times of accidents and health problems. The founder-secretary of SHEPHERD, Peter Palanisami, observed that women tend to withdraw when it comes to investing for their life security. Though the encouraging factor was that women organise their finances better by way of micro-savings, they were not inclined to institutional savings like micro-pension and insurances. Two medicos, Trustee of SSAFE Foundation M. Tamilselvi and V. Priya Thomas from the Government Hospital, Perambalur, detailed on probable medical emergencies for a woman and the need for insuring their health. The Divisional Manager from United Indian Insurance Company K. Ravi and Chief Manager of UTI-MF R. Srinivasan spoke on insuring formalities and challenges in claiming insurance. The Director of NDFS P. Kottaisamy urged the women to start with small savings for a secured future. Of the 50,000 members of SHEPHERD about 14,000 were into micro-pension so far, while a five thousand have been investing in insurances, Mr. Palanisami said at an interactive session with the members that followed the meeting. Apart from the UTI micro-pension scheme, there are several other state level micro-pension schemes as described in boxes 4 and 4b. Annex 1, also briefly summarizes details of 37 other micro-pension (or equivalent) schemes in India, sponsored by Central and State Governments. Many of these schemes have existed in different states but they have had problems in Governance, Systems, Management and Transparency apart from other issues, which are commented upon later.


28

Box 4: Pension scheme for labourers in Rajasthan28 The Rajasthan Government has introduced a pension scheme for labourers in the unorganised sector on a contributory basis to provide social security to them after attaining the age of 60 years. An official release stated here on Sunday that Rajasthan was the first State in the country to implement the scheme. Pension will be given to workers through banks, in which the State Government will deposit its matching contribution up to a ceiling of Rs.1,000 a year. As many as 20 categories of unorganised labourers have been incorporated in the scheme. They include rickshaw pullers, kiosk operators, taxi drivers, domestic helps, barbers, motor mechanics, bidi workers, tailors, washermen, hotel and dhaba workers, self-employed electricians and construction workers. The release said the scheme would be implemented in accordance with the Central Government’s Pension Fund Regulatory Ordinance, 2004, and a licence holding Pension Fund Manager would look after the direct contribution of workers and State Government as well as the earnings thereon. Labourers will get the annuity-based pension on attaining the age of 60 years. The Labour Inspectors across the State have been assigned the task of scrutinising the applications of workers and taking the follow-up action.

Box 4b: Worker Oriented Old Age Pension Schemes in Kerala Abkari (liquor shop) Workers: A minimum Rs. 200/- p.m. and a maximum of Rs. 300/- p.m. depending on years of service. Agricultural Workers: Under this scheme, the amount of pension for agricultural workers is Rs.100/- per month. The applicant should be an agricultural labourer. Annual family income of the applicant should be below Rs.5,000. He must be a resident of Kerala continuously for a period of 10 years at the time of submitting the application for pension and should have completed the age of 60. Application in duplicate in the prescribed form should be submitted to the respective Grama Panchayat/ Municipal / Corporation Office. When an agricultural labourer who has been receiving Pension dies, arrears of pension amount up to his death, if any, will be paid to the legal heir upon the production of a heirship certificate from the Tahsildar. Artisans and Skilled workers: The normal provisions for the various welfare fund boards, schemes and pension schemes for the year 2003-04 are shown (in Rs 60.00. Lakhs). 1. 60 years and above and is a member 1986 Rs.50000 for 40 years of service. Rs.600 for 2

yrs service 2. Death Benefit Rs.10000 3. Permanent disability Rs.1000 Bamboo, Kattuvally and Pandanus Leaf workers: A member who is unable to work due to infirmity or has completed the age of 60 years (ii) to persons who before the commencement of this Act the workers or self -employed persons for a period of less three years and completed the age of sixty years or who suffer from permanent ailment or disablement and are out of employment. Beedi and Cigar Workers: Eligible for pension @Rs. 1000/- after attaining the age of 58 years and have 3 years continuous membership in the Fund. 28 Source: The Hindu, Sep 03, 2007


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Building and Other Construction Workers: A member on superannuation at the age of 60, completing one year of live membership in the Board is eligible for a minimum pension of Rs. 200/ p.m. and an additional Rs. 20/- per year of service beyond five years. When the worker becomes invalid due to disease or accident, he is entitled to get invalid pension based on the certificate from the Medical Board i.e. Rs. 150/- p.m. Fishermen’s Welfare Fund: After attaining the age of 60 years and whose annual income is Rs. 5,000/- is granted a monthly pension of Rs. 600/ to fishermen. An amount of Rs, 120/- per month is granted as pension to the widows of fishermen. Cashew Workers: The pension is granted to a monthly rated staff is Rs.200/- after attaining the age of 60 years or when rendered permanently disabled which incapacitates him to continue and daily rated workers is Rs.125/-. Coir Workers: Rs.100/- per month –unable to work due to old age, infirmity and who has completed the age of 60 years or who suffer from permanent disablement and out of employment. Handloom Workers: A monthly pension @ Rs.100/- on superannuation at the age of 60 years is paid Head Load Workers: An employee who becomes totally and permanently disabled on account of illness will be invalidated if it is certified by a Medical Board and the worker will be paid a monthly pension @Rs.150/- till the date of his death. Toddy Workers: The Board has introduced a pension scheme for the workers and contributes to the fund every year an amount of 10% of the employees’ contribution by way of grant. Laundry Workers: A person who attains the age of 60 years will be granted pension @ Rs. 100/- per month as minimum pension in addition to other retirement benefits. The rate of pension will be enhanced @ Rs. 10/- for every two years in excess of minimum required period of 10 years and the maximum pension will be Rs. 250/-. Barbers’ Welfare: disabled pension per month subject to production of Medical Certificate from a qualified Medical practitioner and Rs. 1000/- as financial assistance. 7.2 Old Age Security Scheme (OASS) of SIFFS – An Informal Scheme There is an informal scheme, in the fisheries sector, which SIFFS has been running as a long term savings scheme called as OASS – Old Age Security Scheme. As per the scheme, a sea going fisherman can get a pension from age of 60 but he is required to save Rs 50 per month until then. SIFFS is presently managing the savings but is looking for a professional fund manager to help manage these savings in the long term. The scheme was started in 2001 as a part of the SIFFS microfinance program. The voluntary saving scheme has completed 7 years in July 2007 and it has been promoted very much in Tamil Nadu and Kerala region. At present there are 2717 members in the scheme with a total savings of Rs.37.48 lakhs.


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The flow of money in the SIFFS OASS is given in figure 6 below:

Figure 6: Flow of SIFFS OASS Scheme This saving scheme is intended to help the artisanal fishermen to accumulate a lump sum at the time of retirement from fishing. The salient aspects are: • OASS is designed for the fishermen community as a long term pension scheme • Any person with membership in SIFFS society can join in the scheme but he has to be an

active sea going fisherman • Minimum eligible age to join is 18 years and up to retirement age of 60 • Multiples of Rs.50 can be remitted as premium amount (e.g., 100,150,200) • Penalty for defaulters exists and it varies by type of default/delinquency • Interest is generally linked to the post office interest rate on savings • Option for withdrawal of deposit on death, membership closure but based on certain

conditions. The deposit growth chart is given in table below

Table 2: SIFFS OASS Growth Details OASS – Interest 9% Post Office-Rd

Interest – 7.5% End of Year

Monthly Installment

Deposit Return Interest Received

Growth %

Return Growth %

5 50 3000 3793 793 26 3645 21.5% 10 50 6000 9711 3711 62 15 50 9000 18948 9948 111 20 50 12000 34033 22033 184 25 50 15000 56901 41901 279 30 50 18000 92588 74588 414 35 50 21000 148277 127277 606 40 50 24000 235181 211181 880

Collection at Society Level,

Rs. 50/month (deducted on Daily

Fish Catch)

Accounted for in Society

Accounted for members on a

daily basis

End of month, Rs.50 for all eligible members are sent

to SIFFS via federation

Deposit/Withdrawal in case of death,

closure of membership etc

OASS Benefit at 60

SIFFS manages the money and invests it but is looking to outsource this function


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The OASS savings statement, as of August 2007, is given below:

Table 3: SIFFS OASS Savings Statement, as of August 2007

S. No Name of Federation

Opening Balance

Deposits-New

Deposits-Old

Total Deposits

Total PenaltyWithdrawal

Final Fund

Balance

1 Central Tamilnadu 1072766 13250 67350 80600 841 7748 1145618

2 KDFSF 1815359 150 43850 44000 348 5871 1853488 3 TDFF 533421 0 0 0 0 0 533421 4 MFFS 199574 350 6650 7000 76 11975 194599 5 FWS NEW 0 6800 0 6800 0 0 6800

6 GULF OF MANNAR 12562 0 1750 1750 35 0 14312

Total 3633682 20550 119600 140150 1300 25594 3748238 The OASS membership details across federations is given below

Table 4: OASS Membership Details Across Federations S. No Name of Federation Total

Members Joined

Members Closed

Members Final Total

1 Central Tamilnadu 1457 171 4 1453 2 KDFSF 802 2 2 800 3 TDFF 262 0 0 262 4 MFFS 119 7 3 116 5 FWS NEW 51 51 0 51 6 GULF OF MANNAR 35 0 0 35

Total 2726 231 9 2717 Several aspects appear to have helped SIFFS be successful in its OASS scheme: • Long term trust of fisherman in societies • Long term trust of fishermen in their federations/SIFFS • Several other aspects including social acceptability of SIFFS and its member

societies/federations, availability of local information, a dedicated team of staff and other factors like a convenient product, which is priced well and distributed appropriately backed by good governance, transparent systems and prudent management.

7.3 Micro-Pensions at SEWA Bank29 “At SEWA Bank, the vulnerable and insecure lives of most of SEWA Bank's clients’ have meant that planning and saving for old age is often a last priority. Their lives are lived from day to day and saving for old age (or later years) is considered a luxury. It is in this context that SEWA Bank worked and developed a very useful pension product, with alternative options. The objectives of this product were: 1. Giving SEWA Bank Clients (All informal sector women workers) a certain degree of security

to look forward to in their old age 2. Encouraging SEWA Bank Clients to think about and plan for their future

29 Source: Offcial SEWA Bank Documents and adaptations, in places.


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3. Educating SEWA Bank clients about the need for old age financial planning and providing them with choices and products in order to meet their old age income needs

The pension scheme has the following rules and regulations:

• Earliest starting age is 18 years old and maturity age is 60 years; • Deposits for minimum 10 years, under any scheme is possible; • Withdrawal before 10 years is allowed but the interest rate is decreased at 1% per time; • Close of account is allowed after 10 years; • At the time of opening the account, the client presents a nomination for the case of

death; • Interest rate regulation is as per RBI rules; • Account can be single or joint (2 clients). At the time of closing the information given at

the time of beginning the account will be considered; joint names are allowed to access the account;

• Necessary documents are:- Residence proof, Photo and initial amount (under the scheme) the options for saving deposits are(Rs.30, Rs.50, Rs.100, Rs.200, Rs.250, Rs.300, Rs.500);

• If the deposit installments are not paid within 3 months, the penalty will be decided by the board of director at that time. If the amount by the time of maturity exceeds Rs.20,000, the payment will be made by cheque

SEWA Bank has the following generic products, which are described in greater detail in Annex 8 • Get Lump Sum Amount At Maturity • Get Pension per month for Life Time after maturity age • Get Pension per month for Next Five Years after maturity age • Get Pension per month for Next Ten Years after maturity age • Get Pension per month for Next Fifteen Years after maturity age • Get Pension per month for Next Twenty Years after maturity age Regarding Marketing, SEWA BANK is the main source of promotion of the product, through its activities and structure, to approach the clients, Hand-holders will co-ordinate Bank saathis and prepare them for giving training on pension in respective areas. Bank saathi, an important channel, educates people about the need for pension and the staff market in the field through meetings and sales. Financial Counseling will have a separate session for training on the need for pension. The Indian Parliamentary Committee on Pensions invited SEWA Bank's suggestions on "Pension Fund Regulatory & Development Authority Act". The Committee has asked for the bank's view because the bank has the experience of implementing its own pension scheme. The bank has made the following suggestions - • It should be the responsibility of the Pension Fund Regulatory & Development Authority to

include poor workers in this scheme and it should be mentioned in the Preamble of the Act. • The term "Working Poor" should be defined and the workers having a monthly income less

than Rs.3, 500 should be included in it. • A special old age pension scheme for the poor old people should be designed • "For Point of Presence", institutions or organisations, directly working with the workers, such

as Non Government Organisations, Cooperatives, Micro finance Institutions, District Panchyat Village Panchyat, current Welfare board Urban Municipal Body etc should be recognized”


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7.4 Other Efforts There are other efforts such as those give below: FWWB, which is a pioneer in building the MF sector30 in India, is also strongly involved in micro-pension efforts. As an official FWWB documents note, “Over the years mF has been able to provide financial service such as credit & savings to women of low income households but it is yet to provide the safety net to these women and their families who are otherwise vulnerable to various risk factor. FWWB firmly believes that this safety net can be spread through various micro-insurance schemes and pension plans for which it encourages and facilitates linkages of insurance providers with its partner organizations.” FWWB has indeed played a very important role in the UTI AMC scheme, bringing linkages to institutions like SHEPHERD and other NGO/MFIs. Likewise, IIMPS31, which was established in November 2006 as a Private Limited Company under the Indian Companies Act, 1956, is also promoting micro-pensions. IIMPS is driven by a Board of Directors who are leading domain experts in the areas of microfinance, public policy, pensions and financial markets. IIMPS is focussed on creating a scalable, sustainable and transparent environment in which millions of low income workers can confidently save for retirement. Over the next twelve months, IIMPS aims to achieve voluntary coverage of one million low income workers through partnerships with leading microfinance institutions and cooperatives that already deliver a range of financial services to large groups of low income workers. IIMPS has also decided to launch a series of parallel 'pilot' projects in collaboration with government departments and NGOs with the objective of reaching individual workers who are not members of MFIs or cooperatives. Among other things, IIMPS is said to be involved in: • Development and management of the social security administrative and transactional

platform with individual pension and insurance accounts • Design and implementation of customised administrative processes and technology at

individual MFI and cooperative partner locations to enable them to securely link to the IIMPS social security platform and operate individual pension and insurance accounts for their members

• Design and delivery of customised promotional and financial literacy campaigns targeting the members of individual MFI and cooperative partners

• Development of low cost, customised pension and insurance products in consultation with financial partners

• Individual partner level human capacity building through specialised domain and system level training and certification

• Encouraging government departments, corporates and aid agencies to co-contribute towards retirement savings and insurance for individual members covered by TAP

• Establishing customer service benchmarks and ongoing quality control, operational audits and impact measurement studies

30 As FWWB has always argued, “One of the biggest challenges facing the Microfinance industry today is developing financial products and methodologies for very poor or difficult to reach rural populations, reducing their vulnerability and increasing their economic well being. To address these issues, the FWWB- USAID project has set aside a part of the project funds towards supporting and promoting innovations in mF. Through the innovation fund, FWWB seeks to provide timely and flexible funding awards to promote Microfinance innovations that intensify outreach and impact, and serve as an effective tool for overall socio-economic development of the clients and the region as a whole.” – Source: FWWB Documents and adaptations, in places 31 Invest India Micro Pension Services (IIMP) is a consulting and administrative service provider in the area of old age income security for workers in informal and formal sector. The joint venture is founded by promoters of IIEF and SEWA.


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• Ongoing policy advocacy, policy analysis and research for bringing regulatory and policy focus on social security issues for low income workers32

Recently, as per PFRDA press release given in Box below, the Parliamentary Committee found (i) State Bank of India, (ii) UTI Asset Management Company Private Limited and (iii) Life Insurance Corporation of India as the three best value bidders and recommended their appointment as sponsors of Pension Funds under the New Pension System. This entry of LIC especially, is very welcome because of the fantastic track record of LIC and its great outreach – both of which could pave the way for upscaling of micro-pensions. Box 5: Pension Fund Regulatory and Development Authority (PFRDA) - Press Release33

Pension Fund Regulatory and Development Authority (PFRDA) had invited Expressions of Interest (EOI) from public sector entities for sponsoring Pension Funds for Government employees on 11th May 2007. To be eligible, the sponsors were required to have at least 5 years experience of fund management and average assets under management of not less than Rs. 10,000 crore. 2. The last date for submission of EoI was 25th May 2007. In response, EoIs were received from seven public sector entities namely, Canara Bank, IDBI Capital Market Services Limited, Life Insurance Corporation of India, State Bank of India , UTI Asset Management Company Private Limited, Securities Trading Corporation of India Limited and Punjab National Bank. 3. Of these seven entities, four were found to be eligible. They were invited for issuance of Request for Proposal (RFP) for sponsoring Pension Funds under the NPS. The four entities to which the Request for Proposal (RFP) was issued on 11th June 2007 are IDBI Capital Market Services Limited, Life Insurance Corporation of India, State Bank of India and UTI Asset Management Company Private Limited. 4. Proposals from all the four entities, including technical and commercial bids, were received in PFRDA by the deadline of 4th July 2007. A Committee was constituted by PFRDA and entrusted with the responsibility of evaluation of the proposals received from the eligible entities, and to short-list the three best value bidders in terms of requirements (technical & commercial) of RFP. 5. Based on the overall evaluation, including technical and commercial parameters, the Committee found (i) State Bank of India, (ii) UTI Asset Management Company Private Limited and (iii) Life Insurance Corporation of India as the three best value bidders and recommended their appointment as sponsors of Pension Funds under the New Pension System. 6. Report of the Committee is under consideration of the PFRDA. 7. Meanwhile, the contract between PFRDA & NSDL is under finalization and the work relating to CRA activities will commence as soon as NSDL obtains the approval of SEBI to undertake this work. Dated: July 20, 2007

32 Source: IIMPS Official Documents and adaptations, in places 33 PFRDA Official Documents


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8 Comments on Micro-Pension Services and Schemes An analysis of the micro-pension/equivalent schemes on offer suggests the following key aspects that need consideration in the future: Product Issues: As of today, micro-pension products appear to be standard individual pension plans with some modifications rather than as products designed exclusively for low income people. Designated fund managers are rather limited and current pension systems do not provide required coverage/benefits. High Cost and Fees34: The fund management fees are quite high. This needs reduction. Also, the financial industry in general and micro-finance institutions in particular will need to reduce their costs of delivery through process improvement and other strategies. This will require that organisations involved in the micro-pension industry have both economies of scale/scope, which reduce costs as well as permit diversification. Also, in the accumulation and pay-out phases, the transaction costs associated with record-keeping, payment of benefits, communication to members, and investment policies and management could be minimized through process improvements and use of technology. Other aspects that require attention35 are: • Better understanding of the structure in the pay-out phase, with an evaluation of different

options. • Enabling more risk-sharing options and arrangements. • Examining the feasibility of co-contributions by the government at the accumulation stage, • The issue of who (fund managers or clients), and in what proportion, should bear the costs of

the services of the third parties needs further analysis, • The possibility of use of auctions to get the best deal in fund management, and • Several other aspects including enhancing competitiveness of fund management, how to

ensure safety and leverage highest investment value especially in the light of failures like in US 6436

34 As Asher (2006) notes, “The Coal Mines Provident Fund Organisation (CMPFO) recently conducted an auction to pick fund managers for assets of Rs.20,000 crores (USD 4.6 billion). The lowest bids were for 0.01 percent of assets under management which is far lower than the 1.75 to 2.25 percent charged by the UTI AMF for micro-pensions. Admittedly, the two costs are not directly comparable. Nevertheless, they suggest possibilities for reducing costs which need to be encouraged.” Likewise, Aggarwal (2007) argues, “How much does pension fund management have to cost? The mutual fund industry has been emphasising fees ranging from one to 1.5 percent of assets under management (AUM) per year. The insurance industry is used to even bigger numbers. In 1999, the OASIS Committee set up by the Ministry of Social Justice and Empowerment had talked about numbers of 0.2 percent and below for the New Pension System (NPS), which could be obtained using an auction for procurement and using index funds. These numbers have been roundly criticised by mutual funds and insurance companies as being completely unrealistic and lacking in common sense. A remarkable recent development shows the possibilities for low cost fund management under Indian conditions. The Coal Mines Provident Fund Organisation (CMPFO) recently conducted an auction to pick fund managers for assets of Rs 20,000 crore ($4.6 billion). ICICI Securities and SBI quoted the lowest price of 0.01 per cent, in a competitive field containing HDFC Bank, UTI Bank, SBI Mutual Fund, IDBI Bank, IDBI Capital and Franklin Templeton. The CMPFO obtained a five-fold reduction in fees for fund management owing to this auction.” 35 Compiled from various critiques of UTI AMC and discussions 36 See Annex 7.


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9 Differences between Micro and Traditional Pension Products There are many key differences between traditional and micro-pension products, which have significant implications for distribution of micro-pensions and associated costs. Several aspects deserve mention here: First is the aspect of the proximity of pension fund manager to customers, which is closer in case of traditional pension products (TPPs) than micro-pension (MP) products, whose clients tend to be far removed and less accessible. Second, is the issue of awareness of the customers and their preparedness to fulfill contractual obligations (in terms of prompt contribution payments etc), again higher in case of TPP customers and lower for BoP clients. Third is the issue of total value and unit transaction value, both of which are higher for traditional as opposed to micro-pension products. Fourth, is the aspect of number of transactions, which is inordinately large for BoP clients as opposed to TPP customers. Fifth, is the aspect of higher transactions cost, arising out of the above, again much lower in case of traditional as opposed to micro-pension products. The key differences, as suggested by this study, are summarized in Table 1 below.

Table 5: Key Distribution Differences Between Micro/Traditional Pension Products Traditional Pension Product Micro-Pension Product

• Easy collection transfers through electronic/other systems

• Regular and periodic collections • Larger amount per transaction. • Larger amounts mean that even

smaller commissions can be sufficient because of low volume of work

• Convincing customers for renewals is rarely required/done

• Mainly, door-to-door collections, e payments at infancy • Weekly or monthly collections • Smaller amount of per transaction. • Such small amounts that where by even uncapped

commissions can be insufficient due to large volume of unanticipated work.

• Convincing customers for collections a routine part of the job and has to be done periodically

• Intermediaries or third party tend to be responsible for sales, in the initial year

• Intermediaries/third party mainly responsible for entire customer relationship for several years, after initial sales

• Customer contact primarily through correspondence/phone and sometimes, in person

• Customer contact exclusively in person

• Connection with client is simplified by greater accessibility of customers, their education, understanding of pensions etc

• Connection with client is complicated due to lesser accessibility and greater remoteness of customers, lesser education, lesser understanding of pensions etc

• Overall, lower transaction cost for 3rd party at time of sales

• Also, significantly reduced work for 3rd party in subsequent years

• Transaction cost can be standardized and benchmarked

• Overall, higher transaction cost for 3rd party at time of sales • Also, no significant reduction in work for 3rd party in subsequent

years. • Again, cost of periodic servicing could vary considerably even

within a country context. Cost of periodic servicing is dependent on various factors including geography/remoteness, infrastructure availability/accessibility, collection frequency, mode and amount, availability of information on client level cash flow, extent of canvassing required for persistency/renewals etc. Therefore, transaction cost varies considerably even within a strategic context and hence, cannot be benchmarked easily.


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Thus, micro-pension products have special characteristics, which makes distribution naturally difficult. Specifically, a high level of post sales service is required year after year, which means higher costs of servicing clients. Also, commission structures have not afforded sufficient incentive either due to inordinately high costs (because of remoteness and lack of easy access to customers) and/or regulatory barriers. So, the question is how have can various stakeholders address this and enhance distribution effectiveness, while at the same time being efficient. 10 Are MFIs Suited for Micro-Pensions37? Two aspects suggest that while MFIs may have a very useful role to play in distributing micro-pensions, there are inherent differences between the Common Microfinance and New Micro-Pensions: a) Microfinance (loans/compulsory savings) are short to medium term products (1-3 years)

where as Micro-Pension is really a long term one. So, trust of individuals in the institution is very critical for Micro-Pension to take off and this trust must be backed by top class professional management over the long term

b) There are very few MFIs with a good background/systems in voluntary savings and that is indeed a worrying aspect if MFIs are to get into Micro-pensions. Pensions like voluntary savings require a very high level of internal control and related systems and these are nascently developed in the micro-finance sector in India (see below38) and primarily due to the following factors:

• Lack of adequate management oversight and accountability, and failure to develop a strong control culture within the institution. Without exception, cases of loss reflect management inattention to, and laxity in, the control culture of the institution, insufficient guidance and oversight by boards of directors and senior management, and a lack of clear management accountability through the assignment of roles and responsibilities. These cases also reflect a lack of appropriate incentives for management to carry out strong line supervision and maintain a high level of control consciousness across the organisation.

• Inadequate recognition and assessment of the risk of certain activities, whether on- or off-balance sheet. Many organisations that have suffered losses neglected to recognise and assess the risks of new products and activities, or update their risk assessments when significant changes occurred in the environment or business conditions including growth. Many recent cases highlight the fact that control systems that function well for traditional or simple products are unable to handle more sophisticated or complex products, especially in burgeoning growth.

• The absence or failure of key control structures and activities, such as segregation of duties, approvals, verifications, reconciliations, and reviews of operating performance. Lack of segregation of duties in particular has played a major role in the losses that have occurred.

• Inadequate communication of information between levels of management within the institution, especially in the upward communication of problems. To be effective, policies and procedures need to be effectively communicated to all personnel involved in an activity. Some losses occurred because relevant personnel were not aware of or did not understand the policies. In several instances, information about inappropriate activities that should have been reported upward through organizational levels was not communicated to the board of directors or senior management until the problems became severe. In other

37 Based on views of experts, discussion with MF industry and past papers like Asher et al 2007 38 Thorat and Arunachalam (2006)


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instances, information in management reports was not complete or accurate, creating a falsely favourable impression of a business (portfolio) situation, and

• Inadequate or ineffective audit programs and monitoring activities. In many cases, internal audits were not sufficiently rigorous to identify and report the control weaknesses. In other cases, even though auditors reported problems, no mechanism was in place to ensure that management corrected the deficiencies.

c) Microfinance thrives mainly on groups (JLGs/SGs/SHGs/NLGs39) and peer pressure

whereas Micro-Pensions will essentially have to be individual based. Thus, as MFIs move towards individual lending, they should begin to have systems suited to this. But, even then, it is preferable that MFIs play a distribution/intermediary role and leave management of contributions to a professional fund manager, who can invest and manage the funds prudently in line with the extant regulations.

d) Hence, while the case for using micro finance institutions that have passed due diligence process for micro-pension services is strong, MFIs must have good systems and experienced personnel, who can, with some basic training, market and administer micro-pensions.

A suggested distribution of roles for Pension Fund Manager and MFIs is given in Table below:

Table 6: Roles of Pension Fund and 3rd Parties like MFIs in Micro-Pensions Aspect Roles of Pension Fund and 3rd Party Administrators in Micro-

Pensions Market Research, Product Design and Target Markets � Selection of specific

target market 1. This is typically done by intermediaries or third parties who may

have captive markets-like credit unions or MFIs 2. Lower search costs associated with intermediaries doing this role

� Initial Screening of Clients

1. MFI/NGO typically has captive market 2. Captive market means lower screening/information/ search costs 3. Internal auditor of pension fund could verify at times 4. When an existing platform/channel is used, a good MIS facilitates

on-line screening using the clients’ past transactions. 5. Good MFIs, Credit Unions etc facilitate this.

� Market Research 1. Often, very little market research is done 2. In many cases, information available with 3rd party (on captive

markets) is used 3. MIS of 3rd party with captive clients, if good, could be very valuable

in gaining insights into client behavior/needs. � Product Design 1. Very little product design

2. Standard product on offer 3. What is convenient for the client may not always be suited to the

pension fund/3rd party. The key is to strike a balance on this � Pilot Testing 1. Rarely done

2. Piloting takes the form of testing product/model with 1 or 2 MFIs initially and then rolling out

39 JLG = Joint Liability Group; SG = Solidarity Group; SHG = Self Help Group; and NLG = Neighbourhood Loan Group


39


Pensions � Pricing 1. Pension fund does it with little or no input from MFI and 3rd party

2. Pricing options convenient for clients may not be convenient for pension fund and/or 3rd party administrator.

3. Balancing these conflicting demands is very critical for success in distribution

� Sensitization of Clients- Consumer Awareness on Micro-Pensions

1. 3rd party (MFI) field workers do it, if they have been trained and have the time

2. Rarely, the pension fund plays a role in this 3. This is a very critical aspect for distribution as ‘aware’ clients have

correct expectations and understand the product well and this results in lower distribution costs because of lesser delinquency etc.

4. Regulation may require insurers to do this in a specific manner and this could significantly add to distribution costs

Capacity Building and Training � Staff Training 1. Specialized technical training is usually available for pension fund

staff 2. 3rd party staff are trained by pension fund staff 3. Regulation may specify type of training for different staff including

curriculum, number of hours, examination schedules etc. All these will significantly increase distribution costs.

� Assisting Clients with Preparations

1. Done by the 3rd party field staff, if they are qualified to do so and if they have the time

2. Training of staff to understand product and believe in it is critical. Administration � Contract Structure 1. Done by the pension fund

2. Very little to do, if it is a standard mandatory product as is the case normally

3. Typically, little or no role for 3rd party and administrator � Processing and

transfer of Applications

1. Done by the pension fund with significant support of MFI field staff; 2. Sometimes, MFI field staff do bulk of this work 3. Training is very critical to do this properly and reduce mistakes and

also associated transaction costs 4. Use of electronic media for vetting and transfer can make a

significant difference to cost of distribution as time/effort are greatly reduced.

� Contribution Collection and Responsibility for Transfer and Transaction Logging

1. 3rd party staff to flow to pension fund 2. This is very critical for effective distribution 3. Internal controls play a critical role 4. Electronic transfer is very critical for clients and also preventing

frauds/loss of money due to malpractices 5. Often there might be a conflict of interest between mechanisms

convenient for pension fund/3rd party administrator and the clients � Client Monitoring for

Collections 1. MFI field staff, if they have been trained to do so and have time 2. Providing reminders to clients is critical to prevent delinquency 3. Physically mixing up loan repayment collections with pension

contribution collections and vice versa can be disastrous


40


Pensions Quality Control and Service Tracking

□ Internal Controls 1. Pension fund and 3rd party administrator, for their respective parts of the channel

□ Internal Audit 1. Pension fund and 3rd party administrator, for their respective parts of the channel

□ Customer Protection 1. Primarily 3rd party responsibility; some with fund (rarely) 2. Training of staff is very critical to ensure this, which requires

significant client education 11 Alternative Channels and Product Suggestions A range of options exist for alternative distribution channels but the major ones are producer organisations, governments, state livelihood missions, agriculture and other corporates, banks, insurance intermediaries, telecom companies, retailers and others – they are keen to enter the market and need to be capacitated and incentivised to extend (and distribute) coverage of client responsive pension services to low income people in a sustainable and scalable manner. Among these, a major channel through which micro-pensions could be distributed40 are the post offices. They have established presence in interior areas and this outreach could be used to service low income clients with regard to micro-pensions. As government machinery and for other good reasons, post offices enjoy a high degree of credibility. While their personnel are experienced in handling small savings, they may need to be trained to service pension schemes. Moreover, the post office may need to offer more flexibility in terms of deposit timings and even perhaps doorstep collection services to ensure regularity of savings. An experienced asset management company should handle funds management, for and on behalf of post offices In terms of product substitutes, reverse mortgage arrangements are another product and channel that can be considered. The 2007-08 budget has proposed that the National Housing Bank consider such an instrument. HDFC is also said to be working on this. Thus, it appears that a variety of channels, as given above, must be used to expand the coverage of micro-pensions and this alone can help achieve the goal of including large numbers of elderly poor people in the future, in India’s financial system.

40 Several industry experts including Asher et al (2007) concur with this view but suggest that some capacitation will be required.


41

Ideas for suggested pension equivalent (substitute) products, based on discussions in India with various stakeholders and low income clients are given below:

Table 7: Regular Micro-Pension Product41 Aspect Features Product Features

• Small opening balance and operating balance • Small deposit amounts at regular frequency without charges • No or limited withdrawal (may be lump sum every 3 or 5 years) • Long term recurrent, contract or disciplined savings • Free withdrawals (of limited amounts with ceilings) for emergencies – especially

medical bills or health insurance coverage as part of subscription • Should be able to use savings to access loans of partial amounts (60% of the

saved amount) or 30% of the total investment • Should have no diversion of funds to cover delinquency • Save up for a long period of time and at retirement, the saver is given a choice of

whether to take out lump sum cash or to be receiving a specified amount of money per month until death like a pension scheme or both

Promotion and Awareness

• Most important, the product needs to be proactively promoted with clear mention of benefits

• All terms and conditions must be explained in detail • Should have good support service for the elderly. Should have support services

such as medical treatment, funeral support, counseling and business (investment) advisory services, and medical insurance cover.

• Special staff, who would monitor the scheme, educate people, encourage savings • Ensure long term security of saved amount through some government

involvement to manage, if MFI/NGO collapses • Financial institutions could also educate people (functional and financial literacy)

on how to prepare for old age as well as how to run businesses. • The name of the product should attract potential customers and so should explain

the target and purpose, such as: Old Age Security Savings (OASS), Long Term Savings (LTS) etc

Cost/Price • Low and reasonable transaction fees • High returns on investment • Interest rate on loans in proportion to interest on savings – may be 1 % higher

than what the returns are Distribution • Should be accessible in remote areas

• Use technology for transactions Other Aspects

• Documentation should be minimal and simple • Good support from staff who deal with clients with time, patience and clarity • Staff specially trained to deal with the elderly • Should be minimal and simple • Accessing the saving by the client should be simple • Additional support in counseling/training for business

41 Compiled from discussions with stakeholders and several other resources, including MicroSave/CGAP notes and documents.


42

Table 7b: Reverse Mortgage Product42 Another suggestion was property investment using savings by bank/MFI: • Here, the saver would commit to regular and long-term savings • The bank/MFI would use these (long-term) funds to purchase property (land and/or

buildings) on behalf of the savers and allocate plots of land to them in their name • At the point of retirement or a certain agreed time thereabout, the land would be distributed

to the savers. • If the investment were in building(s), the bank/MFI would continue managing the building(s)

and the savers would receive the earnings on a monthly basis. • The saver would be allowed to borrow against his long-term pension savings/assets (like

reverse mortgage). • The bank/MFI would also provide insurance services so that in case of death, or disability

the policy provides for basic needs. 12 Technology Based Distribution of Micro-Pensions and Related Products 12.1 IDBRT Solutions In AP and other parts of India, IDRBT is trying a low cost solution whereby every customer in the rural village is offered a smart card with impressions of four fingers for security reasons. The smart card is offered free of cost to those who qualify for financial inclusion. A program is run on the entire network to check duplication of clients on the basis of the finger prints captured which is very secure. POS can be used interchangeably by the Banks in the network similar to how an EMV (Europay/Master/Visa) settlement happens and the POS device has online and offline connectivity. It can work off line and a security feature has been built in with a specified limit (as desired by the Banks) set on the POS device after which the device gets locked and needs authentication/online connectivity for continuing operations. The BC would also be given an authentication card only after which he /she can carry on transactions in the device. The card can also be used at any Merchandise to make payments. Pension payments are to be routed through these cards and is being done on a pilot basis in AP. The Cost of IDRBT solution is given below:

Table 8: Cost of IDBRT Solution Aspect IDRBT Solution

For using the Core Banking Solution Rs 55 per customer irrespective of the number of accountsFor the front end automation POS Device – INR 18 K Transaction fee Nil Enrolment Rs 100 per customer (One time) 12.2 FINO Pilot Although early days, the FINO Pilot, in collaboration with the Govt. of AP in Karimanagr district43 is involved in another interesting project, for pension payments. “In the village of Parlapally in the Thimmapur mandal of Karimnagar district in AP, FINO is part of a project, where the smart cards are being used for disbursal (of pension payments and wages) under the NREGA and pension schemes. The process of issuing smart cards for beneficiaries, contracting an NGO 42 Compiled from discussions with stakeholders and several other resources, including MicroSave/CGAP notes and documents. 43 Based on the observations of Mr Anant Natu and Mr Aashish Bansal (Social Initiatives Group, Chennai) during the field visit to Thimmapur mandal of Karimnagar district. The visit was facilitated by Jaimon Jose, FINO. This entire section draws from the note shared by Mr Ananth Natu.


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called Krushi (as an intermediary), negotiations with the VOs44 began in June 2007. The final deliverable i.e. of disbursing wages and pensions through smart cards started in August 2007.

Table 9: Comparison of Processes, Pre and Post FINO Day Process Under FINO Process Earlier 1-6 Worker reports at the NREGP work-site in his/her village and

entry is made in the muster -same-

6/7/8 Consolidated Muster Rolls (CMR) for each village i.e. payment due to each worker based on his attendance during the week is sent to Mandal office

-same-

6/7/8 Mandal office receives CMRs from each village in the mandal -same- 6/7/8 CMR details are uploaded on to the FINO server by Tata

Consultancy Services (TCS) Pay orders prepared at Mandal office for Post offices (PO) /Village Panchayats

9/10 A consolidated cheque worth the total disbursement for the week in the entire mandal is issued to FINO by the Mandal office. FINO deposits the cheque in the local bank (UBI in this case).

Money orders in the name of individuals are sent to the nearest PO or the money is transferred to respective village panchayat’s bank account

10 FINO hands over to Krushi: 1. hard copy of the CMRs (this is an interim process to be

done away with once the comfort on smart cards is achieved) and

2. total cash that is to be disbursed in a village

11 Krushi sends its employees to villages and they personally handover the list and cash to the VO representative (VOR)45

11 The VOR connects the hand-held device (HHD) online (through any STD phone line) and downloads the amount to be disbursed to the beneficiaries from the FINO server

12 On the day specified for disbursement, beneficiaries come to the Panchayat Office

Money orders are collected by the individuals at the PO or the disbursement is made at the Panchayat Office

12 VOR first validates her identity using the biometric verification on the HHD. Thereafter beneficiaries come one after the other and disbursements are made to them after the HHD validates their identity and verifies the amount on the card

12 On swiping the card, the data in the card and HHD is updated to show the current transaction (e.g. debiting Rs.X from the present balance)

12 At the end, the HHD is again taken to an online mode, where the data is synchronised with the FINO server.

FINO is currently carrying a service charge of 2% on total disbursements from the government. FINO in turn pays commission to Krushi and VOR for their service. Disbursements per week for a village may range from Rs.10,000 to Rs.200,000. FINO provides training to the VOR about the functioning of the HHD. Reconciliation of accounts amongst FINO, Krushi and the VOR are

44 VO or the Village organizations are the federation of SHGs at the village level. Typically a medium size village will have one VO, some may have up to 2 or even three VOs. VOs are village institutions and come under the Gram Panchayat. 45 VO representative is nominated by the VO to disburse cash in the village. The person has to be a woman and a high-school pass. She is in possession of the hand held device and acts as an agent for FINO.


44

done after every 3 months. The cost of smart card (~Rs.120 per card) and the cost of the hand held devices (~Rs.20,000 per device) is being partly borne by the GoAP for this pilot.”

Figure 7: Process Flow of FINO

12.2.1 Perceived benefits46 On the face of it, the existing system of pension/wage payment (through the Post Office or POs) looks fine especially given the 1.55 lacs plus post offices (POs) in India (roughly one in every Panchayat). So why should banks and a technology platform (based on biometric identification and smart card) replace this? Benefits, which are oft-quoted, are as follows:

Long queues in front of a Post Office mean a loss of a full day’s work/wage. Under the new arrangement, this can be avoided

Post masters may be corrupt or corruptible (monitoring is rather weak and there are no disincentives for cheating). They would demand their ‘cut’ or suvidha shulk for releasing money and in case of individuals not turning up, the money could be pocketed by the post master. Also, there are chances of bias or discrimination because of the socio-political linkages of post masters, which can be minimized under the new arrangement

Rural POs are short on manpower and using them as a channel for wage disbursement can burden them further.

46 Benefits for the Bank: Float on the cash per week. At a block level supposing that there are 100 villages with 100 beneficiaries each receiving Rs. 600 per week. It amounts to a float of Rs.60 lacs per block or Rs.6 Crores per district.

Wages Record Consolidation at Mandal

Level

FINO

Pension Records Consolidation at Mandal

Level (Monthly)

Krushi AgentKrushi

(Intermediary)TCS

UBI Bank Agent Nominated by VO

Beneficiaries


45

VOs can have better penetration and reach as compared to PO or Village Panchayat since they are not present in every village (roughly three to five villages). VOs may also be easy to monitor.

Cash (wage/pension payments) for the beneficiaries who do not turn up, cannot be taken by another person in case the verifications are done electronically. Manual records are easier to manipulate than electronic records and POs/Panchayat secretaries could do so. Also, there are minimal chances of frauds or siphoning of funds as physical presence of the beneficiary (biometric identification) is necessary for getting the payments in case of smart cards. Also, the chances of corruption/loss of data during its transfer are remote.

Overall, the experience has been that the payments under the PO have been often delayed for long periods and since the same is manual, the management of MIS for the government is a challenge.

12.2.2 Future possibilities

Under the present pilot, FINO has “virtual account” of all the beneficiaries of the NREGA at their core banking solution enabled servers but are yet to find a Bank which can buy/share this client specific data and upgrade it into a saving bank account. Unlike the present case then, FINO’s role will be limited to that of technology provider.

As stated earlier, this ‘virtual account’ for every beneficiary at the Core Banking Solution’ of FINO can act as a saving banks account after it is transferred to a bank that wishes to make the beneficiaries of such programmes as its customers for driving the financial inclusion mandate. Banks would still need an agent who is able to deliver the cash wage/pension payments at the doorstep of the customer. An NGO or preferably an MFI (as it has experience of holding cash), acting as a Business Correspondent, could provide this service.

12.2.3 Unresolved Issues There are two possible issues here with future use of this new arrangement:

As long as human interface remains, the chances of corruption due to power imbalance between the operators and the beneficiaries/clients cannot be ruled out. Even in case of electronic transfers, such as hand held machine transfers, there may be an element of corruption as long as the money is exchanged through human agency. What happens when the beneficiary swipes in Rs.700 but the agent/VO disburses only Rs.500. Appropriate controls would be required and this may enhance the cost of delivery overall. Though issues such as cases of misrepresentation and/or ease in maintaining of an MIS are taken care of by the new arrangement, cash is still being moved. One can also consider VOs to be more socially accountable to their particular villages but until proper incentives are designed for the operators and the clients/beneficiaries are made financially literate and aware of their entitlements and receivables, instances of corruption cannot be eliminated completely.

The entire costs of putting a whole new technology based channel needs to be better understood


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Likewise, another recent phenomenon is where mobiles are to be used en masse for rural banking in India and especially for payment of pensions and the like. “NXP47 and A Little World have collaborated to bring a next generation solution that will let over 45,000 people in rural areas access full featured banking services at their village. NXP has designed a mobile that encloses an RFID card, which will work with A Little World’s micro banking platform ZERO. RFID is a short-range wireless connectivity technology that enables consumers to securely exchange and store all kinds of information, simply by bringing two devices close together – such as a mobile with an ATM. The mobile acts as a branch of the bank by storing the entire database of customers in the village and neighbouring areas within the phone’s memory, protected by a high security chip built into the phone. The mobile encloses a smartcard, which biometrically stores the identity of the customer such as name, address, photograph, fingerprint templates and relevant details of the savings or loan accounts held by the issuing bank. The RFID cards, being used in the pilot, use the same chip that is embedded in the newly issued e-Passports in more than 35 countries worldwide, including the US, countries in Europe, and Singapore by NXP. Seven banks have deployed a project led by NXP Semiconductors and A Little World in over 450 villages across four states in India - Uttarakhand, Mizoram, Meghalaya and Andhra Pradesh. The pilot project brought customer service points equipped with new generation NFC enabled mobile phones, contactless RFID smart cards and integrated biometrics. For the participating banks, it is an important step that will eliminate the cost and effort to set up physical branches in rural areas, while providing full services for cash deposits, cash withdrawals, utility payments, money transfers, micro-insurance, and cashless payments. Mr Anurag Gupta, CEO of A Little World, remarked, “The ZERO platform based on a slew of new technologies is now the benchmark solution that many others are looking to emulate. We have carried out pilot projects with State Bank of India in villages located in some of the most inaccessible and difficult terrains of the country such as Pithoragarh in Uttarakhand, Mizoram, Meghalaya, and remote villages in Andhra Pradesh. ” “In Warangal, we have also worked with Union Bank, Axis Bank, Andhra Bank, State Bank of Hyderabad and Andhra Pradesh Grameena Vikas Bank in a collaborative project between six banks and the Government of Andhra Pradesh, being directly supervised by Reserve Bank of India,” he added. “According to the Reserve Bank of India figures, approximately 40 per cent of Indians lack access to formal financial services and are largely ‘unbanked’,” informed Mr Rajeev Mehtani, Vice-President and Managing Director, NXP Semiconductors India, in a release. Speaking on the occasion, Mr Ashok Chandak, Director NXP Semiconductor, added, “The ZERO platform uses contactless technology from NXP Semiconductors in an innovative way with the potential to bring about rapid deployment of IT-enabled financial inclusion in villages and to provide mainstream financial services to rural citizens through a mini core banking system right inside their villages. This will also ensure that benefits disbursed by various Governmental programmes like social security pensions and wages under NREGA reach the intended beneficiaries quickly and at a lesser cost. From the point of view of the bank, the platform is simple, secure, cost effective and has the potential to provide multiple services to the customer via a single channel.”

47 Source: The Hindu Business Line, 5th Oct 2007 and cited from Arunachalam Ramesh S (2007), Microfinance and Technology, MCG Research Note.


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The case of using mobiles for low income financial services like micro-pension in India is similarly argued by Dr Pawan Bakshi48, Head M-Commerce, Airtel who notes that, ‘The banking infrastructure in India, given its size, is still inadequate. As per our estimates, there are 69,000 bank branches, with 50% of them in urban areas. However, 70% of India’s population still lives in the rural areas and moreover, the number of persons served per branch are 7,500 in urban and 23,000 in rural areas. Also, 81% of our villagers don’t have a bank branch within 2 kilometers of their village and over 20% of them have to travel more than 10 KMs to a bank. Thus, mobiles offer a great solution with several advantages: • Rapidly expanding network. Coverage of all census towns and ~5 Lakh villages will cover

almost 95% of India’s population • Person based rather than location based • 200 Million mobile phones in the market today and India is one of the fastest-growing mobile

phone markets in the world, adding 7 million new subscribers a month. India is expected to cross 450 Million subscribers by 2010

• Indian mobile services are most affordable telecom services, globally. Adding one more service, especially non-telecom related, will make it more attractive.

• Mobile phones are no longer considered as an “expensive toy” or for that matter a “complex gizmo”. They are very easy to use

• Many of these people are moving up from Voice only usage to SMS based transactions/ IVR based responses (e.g. downloading Hello Tunes).

Hence, without question, it appears that mobile technology will enable significant changes in the distribution of financial services. The changes will be positive and should impact cost, speed and efficiencies. There is a very critical need for various stakeholders to work together to ensure that the customer gets a seamless experience and creating an enabling environment is most important. ‘As Dr Bakshi further notes, ‘potential products for mobiles include micro-savings (most believe that low income people usually want only loans, however, there is a significant demand for savings), micro-pensions, frequent withdrawals, micro-credit, micro/bridge loans, micro-insurance, remittances, money transfers and social security schemes. Mobiles can help in several ways by being a PoS device, which has ease of enrolment, provides door step service and is low cost, with instant gratification. Further, the mobile can act as a biometric authentication tool, with required safety and security. Lastly, the mobile can be a tool to authorize financial transactions by customers as well.’

Box 6: Advantages of a mobile network for Micro-Pensions The mobile offers several advantages49 as shown below: • Always on and Transaction Ready - the mobile network offers access 24 hours a day, 7

days a week. Mobiles also ensure that customers are transaction-ready, much in the way cable access has facilitated online PC access and reduced consumer dial-up delays

• Great level of penetration - In India, cell-phones are on a steep upward-climb in terms of penetration and with the costs plummeting, the usage rate could grow phenomenally

48 Quoted after adaptation from from Dr Pawan Bakhshi, (October 2007), “Mobiles and Microfinance”, Bharti Airtel Limited, Presentation for Microfinance India Conference 49 Compiled from 9 sources in the media and also undated note titled, “Technology and security involved in mobile banking for financial services”.


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• High degree of personalization - Through SIM cards, mobile customers have a specific profile that enables customized functionality that directly reflects the mode in which they want to transact business over mobile devices. These cards also provide a built-in platform for a host of other application services including security keys, virtual credit cards and other customized payment instruments.

• Evolution of global protocols - protocols such as WAP (Wireless Application Protocol) have undergone rapid evolution and this enables communication channel between computers and mobile devices. The WAP component essentially provides the facility for reformatting data for display on wireless devices.

• Faster data processing - Increase in bandwidth and data transmission speeds makes mobile data services efficient and cost effective in a real-time environment.

• Security - In addition to smart card security measures, mobile banking transactions can be protected by a private key stored on the SIM card. This way the mobile phone protects the proprietary purchase and financial information.

All of this will help in operationalising micro-pensions as a low cost, affordable financial service for the poor. Lastly, in insurance, Insurers and intermediaries have integrated technology into the front-end insurance processes (see Table 10 below) that are close to customer. Apart from impact on cost reduction, the use of technology has helped insurers and intermediaries alike to overcome disadvantages of distance, remoteness and high transactions time/effort. In the future, as decentralization of insurance claims management, based on value and complexity of the claims, is likely to occur, technology is expected to play a far greater role in enhancing service, reducing costs and expanding access to hitherto un-reached customers. Many of the same aspects could also be tried in the case of micro-pensions.

Table 10: Potential for use in Micro-Pension S

No. Use in Micro-Insurance Potential for use in Micro-Pension

1. Use of web for promotion/marketing and movies on DvD from mobile vans for promotion (Megatop and Tata-AIG),

Yes, same can be done here

2. The e filling, transfer and vetting of initial client proposals (Megatop), has really saved the Broker and clients significant time as transmittal by post to/from remote rural areas can take several days and the whole process, sometimes, even weeks/months

Yes, client data can be transferred for micro-

pensions

3. E remainder’s for premium payments (Megatop). Yes, very critical as there would be periodic payments

4. Electronic transfer of premium payments (CARD, TUW SKOK) Yes, very applicable and can be done using online connectivity at MFI

5. Electronic deposits of payouts (CARD) Yes, periodic pension payments can be made by electronic means

Much of the motivation for integrating technology in Microfinance/Micro-insurance has been to reduce transactions cost and time/effort and the same can happen in micro-pensions as well. Notwithstanding the above, it is argued that, the use of technology like the above to enhance efficiency in delivery of financial and related services like pensions is an aspect that is worth exploring further.


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13 Distributing Micro-Pensions - Key Issues The following key aspects are discernible from past pension schemes in India (various schemes for low income people) and these primarily focus on aspects related to intermediaries/partners who have distributed the pension products: � Technology can be a significant cost reducer in distribution/dealing with clients for multiple

transactions � Utilising channels that already exist, and are delivering a range of products to target low

income clients, is an effective way to market pensions, provided the right promotional, marketing and operational strategies are used

� Multiple and innovative promotional strategies including web casting, mobile vans with videos and movies, etc. enhance effectiveness of the pension message being promoted and facilitate easy understanding of ‘pension concept’ by target clients

� Local opinion leaders are uniquely positioned to sell newer and perhaps (difficult) products like (contributory) pensions and this is particularly true while serving BoP clients

� The distribution channel should actually promote choice of products addressing old age security – this gives economies of scale/scope, advantages in distribution and also reduces cost of delivery while promoting competition among service providers and products. Together, these make the channel vibrant and facilitate delivery of high quality pension services to the poor at an affordable cost.

� An efficient processing system is one of the most important aspects for effective distribution of pensions and technology can play a very useful role here.

� Efficiency depends equally on the distribution as on the simplicity of the product. Simple products work best because they are easier to administer and easier for clients to understand.

Thus, the distribution channels must suit customers. They should deliver what clients want in a way that will reach them. To provide cost-effective services to low-income clientele, the channels need to: • Adopt a suitable institutional and distribution structure that is suitable for today and can be

adapted for tomorrow. This is keeping in mind the long term nature of pension products • Keep administrative costs low by using technology, outsourcing some functional

responsibilities and leveraging existing infrastructure for distribution – the key is to synergise and share resources but manage pensions independently. This is very crucial

• Use a distribution system that is familiar and comfortable to the customers – people have good will towards and trust the existing field workers and loan officers. This must be encashed as pensions require clients to understand and feel that the organization will indeed survive in the long run and be available to support them in their time of need

• Provide good service whereby the intermediary responds quickly and responsibly – often reassuring clients of safety, returns and some liquidity

• Set up an effective collection system to minimize or prevent internal control lapses and also establish systems to ensure that controls and guidelines are properly followed in distribution

• Do not mix distribution activities and thus avoid entangling pension contributions and credit risks – pensions must be managed separately and clients need to be assured and reassured that their pension contributions and/or savings will not be taken over, even if there is a delinquent loan payment


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14 Regulating Pensions and Micro-Pensions50 There is a strong view that IRDA would be best-suited to perform the functions of a pension regulator, especially for micro-pensions. However, IRDA appears ill suited for three major reasons: (1) No actuarial calculations are involved in pension fund management and actuarial thinking only matters for annuities, not for pension funds; (2) The proposed new pension system design envisages using existing life insurance companies for the purpose of obtaining annuities. All aspects of pension system design, have focused on problems in pension policy other than the problem of producing annuities. IRDA, and insurance companies, lack a focus and professional competence in these problems that go beyond the production of annuities; and (3) Third, the dominant problem for pension policy is creating conditions under which fund management can be done well, so as to maximise the rate of return in the accumulating years. This again is not an area of expertise for IRDA or insurance companies. So what is required is good knowledge about fund management which can make a major difference to outcomes and hence, the case for a specialized regulator Most importantly, an independant pensions regulatory institution would have a greater focus on the unique implementation problems of pensions. This requires building new IT systems, and a strong focus on education. At present, the new pension system does not exist, and the proposed PFRDA has to proactively set about creating these new institutions. Other aspects that negate the case of IRDA include: (1) its focus on proprietary distribution, which has served to drive up costs in the insurance industry, where each and every life insurance company has to build an additional, parallel, proprietary distribution network in the country. This approach is ill suited to obtain penetration into the vast population of the country, especially for pensions – where competitive products and channels are required more strongly. Further, despite the so-called ‘open competitive market’ which prevails in the existing life insurance companies, the problem of proprietary distribution channels has led life insurance companies to complain about the rural and social obligations imposed by IRDA - The New Pension System will have to aggressively focus on rural and social obligations In fact, an examination of the regulatory mechanism of 37 large countries suggests that only in 10 countries, were pensions and insurance handled by the same agency. They were: Belgium, Czech Republic, Finland, Luxembourg, Netherlands, New Zealand, Poland, Portugal, Spain, Turkey. The 27 other major countries had either opted for an independent pensions regulator (16 countries)51 or have placed pensions with an integrated financial regulation agency (11 cases)52. It is important to observe that many of these ten countries, where pensions are jointly regulated, have a pension system that was formulated in the 1980s, and only now are they moving towards new concepts and principles (like those proposed in the new India pension system). It is most likely that if these countries had to embark on pension reforms today, they would have an independent pensions regulator To summarise on regulation, micro-pensions represent a long-term financial contract, with significant potential for agency and other problems, and systemic risk to the financial system. Due to the sensitivity of the population, the contingent liability is on the Government.

50 This section draws heavily from Ajay Shah. “Indian pension reform: A sustainable and scalable approach” and David A. Kelly, Ramkishen S. Rajan, and Gillian H. L. Goh, editors, Managing globalisation: Lessons from China and India, chapter 7. World Scientific, 2006. 51 Argentina, Chile, Costa Rica, El Salvador, Hong Kong, Ireland, Israel, Kenya, Mexico, Peru, Russia, Slovakia, Tanzania, Japan, United Kingdom, United States of America. 52 Australia, Austria, Bolivia, Canada, Denmark, Germany, Hungary, Iceland, Korea, Norway, Sweden.


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Thus, there is a strong case for regulating pension and micro-pension separately. In fact, Pension Fund Regulatory and Development Authority (PFRDA) should consider forming a separate division for micro-pension due to its unique nature and reasons given above, and closely coordinate with RBI, SEBI, IRDA and NABARD so as to reduce regulatory arbitrage and bring coherence to pensions and micro-pensions sector. These regulators, along with the Ministry of Finance, should ensure financial stability by minimising systemic risk, and enabling the progress towards goals of financial inclusion. 15 What the Future Holds for Micro-Pensions? “The National Commission’s Unorganised Sector recommendations improve upon the earlier proposals for micro-pensions in several significant ways. Some of the salient differences are as follows:

Contributory nature: The Commission has recommended a contributory scheme wherein the worker, employer and the government pay Re 1/- each per day per worker. In case of BPL workers, the workers' contribution is to be borne by the Central Government. The scheme is thus - designed to be both viable as well as participatory in nature.

Universal minimum social security: The Commission has provided for a universal scheme for a national minimum social security comprising health life and old age benefits. The State Boards have the flexibility to provide additional benefits over and above the national minimum if additional finance is mobilised.

Old Age Pension for all BPL workers (aged 60+ years): The Commission has recommended an old age pension for all BPL workers above the age of 60 years.

Federal structure: The Commission recommends a federal structure and active involvement of the State governments through a National Social Security Board (NSSB), the Centre, and a State Social Security Board (SSSB) at the state level and Worker’s Facilitation Centres (WFCs) at the ground level. The structure proposed that the Commission utilise the existing available infrastructure.

Multi-stakeholder participation: The NSSB and SSSB are proposed as representative bodies representing multi-stakeholders’ interests. At the grass root level the Commission has proposed the involvement of trade unions, NGOs that enjoy credibility among the workers and have past experience in this field, as well as local body institutions.

Factual assessment of financial implications: The Commission has undertaken a detailed analysis to work out the financial implications of its proposals, which have been made after considerable deliberation with various service providers and after weighing several alternative options53.”

The commission’s call for an inclusive social security system has resulted in several new pension fund proposals given In Annex 2

53 Source: NCEUS Official Documents (2006 and 2007)


52

16 Discussion and Implications54 Thus, the time for pension reforms with a role for the State as a facilitator, in creating new institutions and in fostering their sound functioning, especially with a focus on micro-pensions is perfect. The key features of such a system would include: 1) Scalability: A scalable system, which would work for the Central, State and Local

governments and more importantly for the larger numbers of unreached people, especially the low income men and women

2) Outreach: Institutions and policies need to be so designed that they cater specifically to the needs of the large mass of financially unsophisticated, who are presently non-customers of the financial sector, engage in small value transactions, and have very very small bits of pension wealth.

3) Fair play and low cost: The design should ensure the highest levels of transparency, governance, competition and sound policy making.

4) Choice: The design should be highly transparent, and foster individual choice across multiple competing pension fund managers, alternative investment styles, multiple competing annuity vendors.

5) Sound regulation: The reform effort should create modern investment regulation, which will single-mindedly focus on maximising the welfare of low income participants in old age.

6) Sustainability: India has substantial experience with funding difficulties - ranging from the railways pension, to the Employee Pension Scheme (EPS) of the EPFO, the “assured returns” products sold by UTI, and failure of banks. Pension reforms must therefore have the norm of using defined contributions, where the wealth of a participant is driven purely by net asset value (NAV), and avoiding assured returns, subsidies, guarantees, or liabilities for the government, and

7) Coverage: It is highly desirable to find ways to reach the vast uncovered unorganized sector, going beyond the existing 11% of the labour force covered by the TCSP and the EPFO.

Table 11 below summarises key lessons from the Microfinance/Micro-insurance/Micro-pension industry on building efficient and effective micro-pensions in India, with a specific focus on roles for various stakeholders Table 11: Lessons from Experience For Building Efficient and Effective Micro-Pensions!

Aspect Building Efficient and Effective Micro-Pensions: What Can Be Done and How?

Market Research, Product Design and Target Markets � Selection of specific

target market 1. Utilize captive low income markets if available 2. Low income target markets of any suitable channel/intermediary/3rd party

could also be used 3. This will reduce search costs

54 This section draws heavily from Ajay Shah. “Indian pension reform: A sustainable and scalable approach” and David A. Kelly, Ramkishen S. Rajan, and Gillian H. L. Goh, editors, Managing globalisation: Lessons from China and India, chapter 7. World Scientific, 2006.


53

Table 11: Lessons from Experience For Building Efficient and Effective Micro-Pensions! Aspect Building Efficient and Effective Micro-Pensions:

What Can Be Done and How?

� Initial Screening of Clients

1. Piggyback ride on existing ‘good’ clients of MFIs/NGOs, if available 2. Ideally, MFIs/NGOs are better positioned to do this and experience

suggests greater role for them (than pension fund manager) will reduce transaction, search and information costs in distribution

3. If pension fund manager has a direct sales force, then local community staff are better used to overcome information asymmetry and also keep costs low

4. When an existing platform/channel is used, a good MIS facilitates screening on-line using clients’ past transactions and thereby helps in cost reduction. Good MFIs, Credit Unions and NGOs should facilitate this.

� Market Research

1. Qualitative techniques must be used to get good insight on client needs and cash flows

2. Available knowledge with MFI/NGO, especially on captive clients is very useful

3. Tap information available with direct sales force or MFIs regularly and on a periodic basis

4. MIS of MFI/NGO (with captive clients), if good, could are very valuable in gaining insights into client behaviour/needs/cash flows

� Product Design 1. Good interaction between pension fund manager and MFI/NGO/Third Party would be useful in producing client oriented products

2. Keep design simple as product can be distributed easily and at lower costs. 3. Pension fund manager should have systems to ensure continuous flow of

market information from MFI/NGO (feedback loops) 4. Greater role for third party/MFI/NGO results in client oriented pensions

products and that will facilitate greater penetration. 5. What is convenient for client may not always be suited to the pension

fund/third party. The key is to strike a balance � Pilot Testing 1. Reduces long-term cost of product failure and so, must be done for

pensions, which are perhaps sold rather than bought 2. For example, pension fund manager could try product with a specific

MFI/NGO, review feedback and then make required changes 3. The key is to learn and adapt from piloting and not just explain it away.

� Risk Analysis 1. Previous (own or other) institutional learnings are a good source of knowledge and must be used

2. Knowledge available with MFI/NGO/Third party should be tapped regularly 3. Specialized technical support (product/market risk management) may be

required to enable MFIs/NGOs/Third Parties to participate in this exercise � Pricing 1. Use flexible contributions and make it simple

2. Feedback of MFI/NGO/Third parties on pricing is critical 3. Pensions layered on existing financial products and/or using existing

infrastructure reduce transactions costs, help reduce prices and make it affordable for client and pension funds

4. Pension fund must understand how much clients be willing to pay and in what mode?

5. Often, what is convenient for client in terms of pricing may not be convenient for pension fund/MFI

Promotion


54


What Can Be Done and How? � Sensitization of

Clients –Consumer Awareness on Products

1. Using MFIs/NGOs to sensitise clients, reduces costs, enhances effectiveness and ensures greater awareness on pension product and perhaps, prevents lapses

2. Community workers are cost effective options in case of direct sales force 3. Use of technology, web and audio visual medium reduces cost significantly 4. Simpler product design makes it easier to communicate the product

features and clients are more likely to understand it. This is very critical for effective distribution

5. Sensitization using existing infrastructure is also cheaper � Promotion to Clients

1. Vernacular promotion/advertising material is very effective 2. Continuous promotion/advertising through web reaffirms message 3. Use of community workers ensures credibility in promotion 4. Specialized and exciting promotional schemes (lotteries, awards, incentives

etc,.) reduce overall costs by increasing client interest and ensuring better penetration

5. Street theatre, dramas, puppet shows are very effective as are magic shows/tricks as poor people understand concepts easily. The impressions tend to be lasting

� Marketing 1. Simple product design reduces marketing costs 2. Use of existing MFI infrastructure reduces marketing cost, especially if

marketing is integrated with other on-going financial products 3. Use of web/related technology reduces marketing cost 4. Involving local community based opinion leaders reduces marketing costs

and enhances chance of client actually trying the product Capacity Building and Training � Staff Training

1. ToTs for fund manager staff so that they train third party staff. This is a cost effective strategy

2. Participation in pension industry events useful for best practices for pension fund managers

3. Outside experts must be used for specialized topics alone 4. Training through web is very cost effective 5. Training in vernacular enhances effectiveness and reduces cost 6. A commitment to continuous improvement and solving operational

problems can be a source of cost effective training 7. Step-by step operational/training manual in local language very useful. 8. Use of live cases, games and other experiential training techniques critical,

especially for field staff 9. Attractive Multi media CDs are very effective 10. Training of clients-in terms of basic exposure-can reduce distribution

problem and associated costs 11. Refreshers/Re-trainings are very critical to successful use of training on the

job � Assisting Clients

with Preparations 1. Field workers/loan officers of MFIs can reduce cost if they do all the initial

work, for which they need appropriate training Administration � Product Structure 1. Simpler and flexible product produce better results


55


What Can Be Done and How? � Processing and

transfer of Applications

1. Electronic processing of applications reduces cost as well as enhances speed of processing. Rejection rate is low in such cases.

2. Application in vernacular reduces cost/time spent on it 3. Where MFIs/NGOs have been trained to do this, the process has been

much faster and less costlier � MIS 1. Simple, effective and integrated MIS between fund manager and NGO is

absolutely necessary 2. Specialized features like automatic reminder (before due date) for collection

of payment and transmitting this by e-mail greatly reduces delinquency. 3. Integration of MIS between pension fund manager and third party can

significantly reduce transaction cost-one entry/transfer for payment of several hundred pension collections on a periodic basis.

4. Integration coupled with ‘no’ cash transfer (if done on a regular), basis, brings down distribution cost significantly.

Collection of Contributions and Transactions □ Contribution

Collection and Responsibility for Transfer and Transaction Logging

1. Local community workers/loan officers collecting pension payments will reduce transactions and collection cost

2. Electronic transfer/PDAs/e-banking reduces collection cost 3. Single premium payment transaction by intermediary (like credit

unions/MFIs) for many clients reduces transaction cost significantly. 4. The kind of payment also affects distribution cost:

In cash/direct transfer, there is security risk in money flow and adds cost of control. However, can be the only feasible option, depending on context

Account-tied payments are convenient for client and channel Deductions/transaction-tied payments are again convenient for client

and channel 5. A relationship of trust is a necessary condition for pension contribution

collection 6. Right timing for collection is important as seasonality is an issue with low

income clients 7. Clients might appreciate financing tools like paying in installments or loan 8. Non-cash payment (e.g. deductions) helps in adding security 9. Often there might be a conflict of interest between mechanisms convenient

for the fund manager and the clients □ Client Monitoring for

Collections 1. Electronic reminders prior to due date through the web/e-mail are very

effective. 2. Monitoring of client transactions electronically and on MIS is critical,

especially when using existing platform/infrastructure/captive clients 3. Loan officers/local community workers are cost effective in monitoring 4. However, never use pension field staff for collecting loan repayments –

rather never mix credit risk with pensions Quality Control and Service Tracking


56


What Can Be Done and How? □ Internal Controls 1. Lesser cash dealings reduces cost of control

2. e-payments/transfers/deductions reduce cost of control 3. Good MIS can reduce controls by automatic cashless deposits and other

such aspects 4. Single transaction for several clients through MIS reduces cost of

transaction and corresponding controls □ Internal Audit 1. Periodic internal audit is very necessary

2. These could be by pension fund managers and third parties on their respective parts of the channel

□ Customer Protection 1. Simple, clear product will lead to less misconceptions 2. Client education is a must to ensure this and regulation may require that

this is done by pension fund manager and 3rd party 3. Effective controls in ensuring that collected contributions are deposited is

very critical. □ Statutory

Obligations (e.g., Reporting) and Legal Issues

1. Regularly engaging the regulator is a critical aspect, especially in liberalizing markets

17 Upscaling Micro-Pension Products in India: Strategies for the Future The future of micro pension, as a distinct stream within micro-finance, depends on several actions and aspects and these are outlined below First, if micro-pensions are to be added as a service, the highest standards of governance, systems and management, transparency would be required of MFIs. The focus would be on enhancing the quality of governance, financial and accounting systems, MIS, record keeping internal audits, risk management and several other aspects. As measure of caution, only those MFIs which have strong systems of voluntary savings including small savings accounts, FDs, RDs etc, could qualify for distributing micro-pensions as in this clients need to trust institution more rather than vice versa Regarding governance, all institutions involved in micro-pensions must be required to follow standards of corporate Governance55 including specific disclosure norms. The following practices should be viewed as critical elements of any governance process:

Establishing strategic objectives and a set of corporate values that are communicated throughout the organisation.

Setting and enforcing clear lines of responsibility and accountability throughout the organisation.

Ensuring that board members are qualified for their positions, have a clear understanding of their role in corporate governance and are not subject to undue influence from management or outside concerns.

Ensuring that there is appropriate oversight by senior management. Effectively utilising the work conducted by internal and external auditors, in recognition of

the important control function they provide. 55 Governance is an aspect that is lacking among financial intermediaries in India and can be regarded as the key factor that could result ultimately in failures.


57

Ensuring that compensation approaches are consistent with the institutions ethical values, objectives, strategy and control environment.

Conducting corporate governance in a transparent manner. Transparency can reinforce sound corporate governance. Therefore, public disclosure is desirable in the following areas: a. Board structure (size, membership, qualifications and committees); b. Senior management structure (responsibilities, reporting lines, qualifications and

experience); c. Basic organisational structure (line of business structure, legal entity structure); d. Information about the incentive structure (remuneration policies, executive

compensation, bonuses, stock options) etc; e. Nature and extent of transactions with affiliates and related parties56

Second, microfinance institutions and non-governmental organizations must alter their perception of pension funds as sources of long-term capital for institutional use because this puts elderly client benefits at risk. Microfinance is volatile business with significant covariant risk in livelihoods of poor people and redeploying pension contributions for internal lending must be avoided at all costs. Otherwise, the hard learned money of poor could be lost. Third, at client level, by and large, the level of financial literacy is rather low with regard to: a) Old age savings b) Estimating the lump sum required c) Functioning of mutual funds d) Facilities of modern financial markets e) Making investment decisions f) Understanding inflation g) Other financial planning knowledge Thus, to create natural demand and ensure a good future for micro pensions, the staff of the MFIs, NGOs, Banks and the team leaders of the Self help groups, must be able to explain ideas of financial planning, risk, yield and all above aspects to poor clients, in an easy and transparent manner. So, capacity building in the above areas would be required for most MFIs. This is an area for future work and needs to be attended to first before micro-pensions can be distributed by MFIs and/or equivalent organizations. Fourth, strong political backed by administrative, financial and infrastructure support. Fifth, at the level of individual MFIs, a very significant improvement in record keeping and MIS, with a focus on individual record keeping. This apart, MFIs must imbibe a mindset towards servicing individuals rather than groups. Lastly, a wide range of stakeholders need to be incentivised to support the micro-pension process so that maximum value accrues to the low income people. An important step here lies is in reducing management fees and costs through auctions and other actions like proactively educating a large proportion of the population about the need for savings, old age security and pension. All this must, of course, be backed by simpler products and schemes, competitive

56For example, the International Accounting Standards Committee defines related parties as “those able to control or exercise significant influence. Such relationships include: (1) parent-subsidiary relationships; (2) entities under common control; (3) associates; (4) individuals who, through ownership, have significant influence over the enterprise and close members of their families; and (5) key management personnel". The IASC expects that disclosures in this area should include. (a) the nature of relationships where control exists, even if there were no transactions between the related parties; and (b) the nature and amount of transactions with related parties, grouped as appropriate. (IASC International Accounting Standard No. 24, Related Party Disclosures).


58

offerings, leveraging of technology and high quality of services/services delivery. This alone can help scale up micro-pensions in India. Further, as a measure of caution, it seems prudent to sign off by pointing out several learnings from the micro-finance sector for micro-pensions (and their introduction) and this is done below. Hence, while upscaling micro-pensions, it seems important to recognize and address contextual factors, in India, such as the following: • The large size and diversity of the country is an aspect and micro-pension would have take

into account social, cultural and economic factors as well as infrastructure that vary considerably across various regions in India

• The division of power and responsibilities between Centre and States in many ways impede implementation and this has to be understood and accounted for in any product for the poor

• Deep-rooted perceptions of social status, that place many categories of the rural and urban poor (Dalits, Tribals and others) at the bottom of the hierarchy, thereby limiting (effective) ways of reaching them – social exclusion

• The lack of strong mechanisms of institutional learning, as a result of which there are no consistent means of incorporating lessons learned into new practice or policy

• The prevalence of strong behavioural norms across the hierarchy, mainly in civil service and to some extent in private sector, including the pursuit at all levels of what may be locally inappropriate targets and the rigid interpretation of norms/systems, leaving very little room for manoeuvre, the absence of substantive rewards linked to performance and especially, in responding to clients’ needs, frequent transfers, and reluctance to serve in what are perceived to be punishment postings


59

Annex 1: State Level Social Security/Pension Schemes for Low Income People (India)57

State Level Social Security/Pension Schemes for Low Income People (India)

Sl. No

Name of Scheme (Year

of Starting) Legal Frame

Work Target Group Source of Financing Benefits Implementing

Agency Coverage Issues/ Problems Remarks

KERALA 1 Kerala Toddy

Workers Welfare Fund (KTWWF, 1970)

The Kerala Toddy Workers Welfare Fund Act, 1969 and The Kerala Toddy Workers Welfare Fund Scheme 1969

A Toddy worker is defined as any person who is directly or indirectly in the production (tapping), collection and distribution of toddy for his livelihood. All toddy shops/premises are covered under the Act (Fund).

Government : Nil Employer : 13 % of workers wage Employee : 8 % of workers wage

Pension: A pension scheme has recently been evolved and it offers Rs.100 per month to retirees who have up to ten years membership and also offers an additional amount of Rs.10 per month for every year that comes for every year following the completion of the 10th year at the Fund. PF Gratuity: Net credit to the account of the worker (provident fund a/c) and gratuity paid with interest (currently 11%) on superannuation, retirement or on his death. Gratuity is 50% of the monthly average of wages for each completed year of service subject to a maximum of 20 months wages. Disability Death: Disability Allowance Rs.125 per month. Funeral expense Rs.2,000. Children’s Education: Non refundable advance (deductible) from his contribution Rs. 1200 or 50% of his contribution, whichever is lower. Medical: Non-refundable advance of his three months wage or 50% of his contribution, whichever is lower. For cancer treatment, he will be paid Rs.3000 as grant (nondeductible) Marriage and Maternity: Nonrefundable advance from his contribution. But he should have at least Rs.500 in the Fund. Unemployment: Refundable advance in case of unemployment, provided he has at least Rs.500 in the fund. Housing: Provided he has at least three months wages at the Fund.

Labour Dept. and Board of Directors

41,300 as in 2003

Nil Nil

57 Adapted and compiled from several sources including official documents, printed material and several National Commission for Enterprises in the Unorganised Sector (NCEUS) reports (2006-2007)


60


Sl. No





Special Allowance: A member can withdraw funds from his account in order to pay the insurance premium.

2 Kerala Head Load Workers Welfare Fund (S) (KHEDLWWF, 1981)

The Kerala Head Load Workers Welfare Act , 1978 (Act 20 of 1980) The Kerala Head load Workers Rules, 1981 The Kerala Head Load Workers (Regulation of Employment and Welfare) Scheme, 1983 The Kerala Head Load Workers (attached groups) Welfare Scheme, 1995 and The Kerala Head Load Workers (Scattered groups) Welfare Scheme, 1999

A ‘Head load Worker’ is defined as an individual who works for an establishment either directly or through a contractor for wages, in loading, unloading, carrying on head or in a trolley, any article from any place. But this does not include a person engaged by an individual for domestic purposes.

Government : Nil Employer: 25% of the workers wage (including gratuity 5%) Employee: 10% of wage

Pension: Individual scheme not yet evolved Family Pension: Rs.125 per month Invalid Pension: Rs.250/- per month. PF Gratuity etc: Every member will be paid an amount at the rate of 10 percent of total wages earned during the entire period of service. This is refundable advance in case of unemployment, provided he should have at least Rs. 500 at the fund. advance in case of unemployment, provided he should have at least Rs.500 at the fund. Refundable Disability Death: Ex-gratia benefit Rs.2000. Rs.100 per month to permanently disabled members till his death or lump sum amount of Rs. 10000. Children’s Education: Education grant- Rs.100 per year per child and scholarship varies from Rs. 100 to Rs.2000. Medical: Medical grant up to Rs. 2000 under medical reimbursement scheme. Marriage & Maternity: Interest free loan of Rs. 3000 or three months wages whichever is lower for marriage purposes.Unemployment: Holiday Allowance of Rs.30 per day for seven days and his average wage for their lumpsum retirement benefit or gratuity. If there is no such amount, Rs.10, 000 as special superannuation assistance is disbursed, provided he should have 100 days of work in each year. Housing: Rs.40000 for the construction of a new house and Rs10000 for repairing, as refundable advance which should be under group insurance scheme Rs.20000, if accident death occurs. And funeral expenses of Rs. 500. Special Allowance: Bonus payment -


80,700 as in 2003

Nil Nil


61


Sl. No





11% of total wages earned by the member during each year in connection.

3 Kerala Motor Transport Workers’ Welfare Fund (KMOTWWF, 1985)

The Kerala Motor Transport Workers’ Welfare Fund Act, 1985 and The Kerala Motor Transport Workers’ Welfare Fund Scheme 1985

A person who is employed for wages in a motor transport undertaking directly or through an agency to work in a professional capacity on a transport vehicle, like driver, conductor, cleaner, station staff, checking staff, cash clerk, time keeper, watchman or attender. An employee becomes eligible for membership on completion of three months of service.

Government: Nil Employer: 13 % of the workers’ wage Employee: 8 % of the workers’ wage

Pension: Net pension amount with compound interest, PF Gratuity: Net amount in the P.F account and gratuity paid with interest (currently 9%) at the time of superannuation or on his death. Disability Death: Ex-gratia benefit Rs. 5000 and funeral assistance Rs1000. Children’s Education: Non-refundable advance for education which should not exceed Rs. 1200. Provision for scholarship. Unemployment: Two days. Also, financial assistance in connection with natural calamity. Housing: Repaid within 15 years with minimum interest. Special Allowance: with Vishu or Onam festival. Also provision for festival allowance (maximum Rs.2000).


53205 as on 31-01-2003

Nil Nil

4 Kerala Advocate Clerk Welfare Fund (NS) (KADCLWF, 1985)

By Government Orders

A person who functions as an Advocate Clerk, registered under the Kerala Advocate Clerk Welfare Act who is within the age limit of 20 and 70 are eligible for membership in this scheme.

Government: Rs. 90 per year per member Employer: Nil Employee: Rs. 60 per annum per member

Pension: No provision PF Gratuity etc: At the time of retirement, he will be paid according to his service. If he has completed 30 years, he will be paid Rs.10, 000. Disability, Death: Since there is special provision for an advance clerk who is aged between 35 and 70 years, ex-gratia varies from Rs.1000 (up to 60 years) to Rs.2500 (for 71-75 years) Funeral assistance is Rs.500. Children’s Education: No Provision Medical: Non-refundable advance from his contribution. Marriage& Maternity: An advance (deductible) of 50% of his contribution for marriage purposes. Unemployment: Provision for unemployment allowance. Housing: Nonrefundable


2569 as in March 1994

Nil Nil


62


Sl. No





advance, which consists of 12 months wages and DA or his own contribution with interest, provided he must have at least Rs.750 in the Fund. Also, there is provision for unemployment allowance. Special Allowance: No special schemes.

5 Kerala Artisans Skilled Workers Welfare Fund (NS) (KARSWWF, 1986)

The Kerala Artisans and Skilled Workers Welfare Scheme, 1991

Workers in the informal sector such as Tree Climbers, Gold Smiths, Carpenters, Shoe Makers, Beedi Makers, Potters, Chakku Oil Extractors, Cycle Rickshaw Workers, Gunny Bag Collectors, Cycle Repairers, Watch Repairers, Milk and News Paper Distributors, Ice Makers, Milk Extractors, Photographers, Tailors, Barbers, Dhobies and also all other workers who are not covered by any of the welfare schemes in the state, within the age limit of 20 and 58 are eligible for membership in this scheme

Government: Rs. 2 per every Rs. 10 contributed by the worker Employer: Nil Employee: Rs 10 per month per worker

Pension: No provision PF Gratuity etc: Since there is no provision of P.F & gratuity, the net amount at the Fund (only membership contribution) with interest is given back at the time of retirement or death. This amount varies from Rs.600 to Rs. 50,000 depending on service. Disability, Death: Ex-gratia Rs.10000, Disability allowance Rs.100 per month, Funeral expenses Rs. 500. Children’s Education: Scholarship ranges from Rs. 300 to Rs. 1500 Medical: Medical aid up to Rs. 500 (injuries in the course of work). Marriage & Maternity: Marriage assistance of Rs.1000 to any person of the member’s family. Maternity benefit of Rs.500 twice (members only) Unemployment: No provision Housing: No provision Special allowance: Loans for purchasing tools subject to maximum amount of Rs.2000


211800 as in 2003

Since maternity, marriage and educational benefits are low and there is no provision for pension in the scheme, members are least interested in retaining the membership and opt to have their refunded contribution.

In order to tide over the financial constraint, it is necessary to increase the rate of subscription and the matching grant to 50% of the subscription.

6 Kerala Cashew Workers Relief and Welfare Fund (S) (KCSHWRWF, 1988)

The Kerala Cashew Workers Relief and Welfare Fund Act, 1979 (Act 19 of 1984) and The Kerala Cashew Workers Relief and Welfare Fund Scheme 1988

A cashew worker is any person who is engaged in any form of employment in the processing of cashew. The scheme applies to cashew workers and their dependants (husband/wife, unmarried daughters and minor sons and parents, minor brothers and unmarried sisters, fully dependant on the beneficiaries). He/she is eligible for welfare benefits of the Fund, provided he/she is resident of the state., with a minimum of five years in the industry,

Government: Twice the amount contributed by the employer Employer: Rs. 1 per worker per working day Employee: 50 ps per worker per working day

Pension: Minimum two year membership, 60 years, Rs.100 per month for ordinary worker and Rs. 200 per month under staff category. Family pension in the event of death of the pensioner. PF, Gratuity etc: Since the Fund is an Insurance Fund, no provision for P.F, gratuity and other lumpsum retirement benefit Disability, Death: Ex-gratia Rs.2500 under special consideration like death, illness or permanent disablement. Funeral


150000 as in 2004

The Board is now facing an acute financial crisis. The industries seldom function due to non-availability of raw nuts

Nil


63


Sl. No





annual income not exceeding Rs. 3600 and is not covered by ESI/Maternity Benefit Scheme

expense of Rs. 500 for a member and Rs.250 for pensioner but it is deductible from his contribution. Children’s Education: Scholarship- Rs.500 to Rs. 2000 per annum. Cash award of Rs.1000 per student (only for SSLC and Pre-degree students) Medical: No provision Marriage & Maternity: Only maternity benefit twice to those who are not covered under ESI scheme (Rs. 500) Unemployment: Supply of free ration or payment of cash assistance during continuous unemployment subject to availability of the funds. Special Allowance: No special schemes.

and thus workers do not have a steady income.

7 Kerala Khadi Workers Welfare Fund (S) (KKHWWF, 1989)

The Kerala Khadi Workers Welfare Fund Act, 1969 and The Kerala Khadi Workers Welfare Fund Scheme, 1969

The workers who are employed for wages under employers, contractors, in co-operative or self-employed for subsistence in Khadi industries are eligible to be a member of the Scheme.

Government: 10 % of workers' wage Employer: 10 % of workers’ wage Employee: 10 % of workers’ wage

Pension: Minimum 10 years as a member, 60 years, Rs. 60 to Rs.180 per month depending on service. If his service is less than 10 years, he is eligible to get only his contribution. Family pension in the event of death of the pensioner at the same rate. PF, Gratuity etc: Since the fund is an Insurance Fund, No provision for P.F, gratuity and other lump sum retirement benefit Disability, Death: Rs. 5000, if permanent disability occurs. Funeral assistance Rs. 350. Children’s Education: Non-refundable advance of Rs.1500 or 25% of contribution can be withdrawn for higher education. Education grant (non-deductible) Rs.250. Medical: Up to 50% of contribution for his or her dependent for medical treatment and also provision for maximum medical grant Rs. 250. Marriage & Maternity: 50% of contribution as marriage assistance to any member of the family. Maternity benefit of Rs.300 at two times


14600 as in 2003

Nil Nil


64


Sl. No





Housing: Provision for non-refundable advance 25% of his contribution for purchasing land and 75% for the construction of house. Special Allowance: Rs 8 or 50% of contribution whichever is lower for paying the insurance premium.

8 Kerala Coir Workers Welfare Fund (S) (KCORWWF, 1989)

The Kerala Coir Workers Welfare Fund Act, 1987 and The Kerala Coir Workers Welfare Fund Rules 1989

Coir worker is any person who is employed for wages to do any work in connection with the various processes in the coir industry and who gets his wages directly or indirectly from the employer, dealer or producer of coir products. This will include contractors or agents and anyone who depends mainly on the coir industry for his livelihood and any person employed in the coir industry (self -employed). The Scheme also covers their dependants.

Government: Grant which is twice the amount contributed by the workers Employer: * 1% of the turnover. * Co-operative society Rs. 1 per month per worker and others Rs. 2 per month per worker Employee: Rs. 1 per month per worker

Pension: Minimum two year membership,60 years, Rs.100 per month and family pension in the event of death of the pensioner. Family Pension: Rs.75 per month PF, Gratuity etc: Since the Fund is an Insurance Fund, no provision for P.F, gratuity and other lump sum retirement benefit. Disability, Death: Ex-gratia benefit Rs. 5000, if disability occurs. Rs. 100 per month till retirement age (60 years) and funeral expense of Rs. 200. Children’s Education: Scholarship for higher education-Rs. 500 to Rs.1500 per year on the basis of merit. Medical: Medical grant of Rs. 350 per year to any person in the family Marriage & Maternity: Grant of Rs.1000 in Connection with marriage and Rs.300 as Maternity benefit twice to those who are not covered under ESI scheme. Unemployment: No provision Housing: No provision Special Allowance: No special schemes.


550000 as on 31-03-2003

The Board has a huge responsibility to pay 16 months pension to 55000 coir workers, which places the outstanding amount at Rs.880 lakh as on March 2003.

9 Kerala Fishermen Welfare Fund (S) (KFMWF, 1986)

The Kerala Fishermen Welfare Fund Act 1985 and The Kerala Fishermen Welfare Fund Scheme 1986

It covers all fishermen who are employed for wages in a fishing vessel or self employed fishermen who are registered as members of Fishermen’s Welfare Society.

Government: Contribution for pension and group insurance premium Employer: * Dealer 1% of the turn over. * Vessel owner Rs. 1 to Rs. 7

Pension: Rs.100 per month. PF, Gratuity etc: Since the Fund is an Insurance Fund, no provision for P.F, gratuity and other lump sum retirement benefit. Disability, death etc: Ex-gratia Rs.15000. Group insurance covers accidental death (Rs. 25000) and partial disability (Rs 12500). Funeral assistance (member) Rs.1000


2,20,600 as in 2003

The Supreme Court has ordered that the dealers’ contribution should not be collected.


65


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per month for nine month. * Net owner Rs. 1 per month, * Farm owners 2 % of value of fish caught Employee: * 3% of value of fish caught or 3 % of wage. * And Rs. 30 per worker per year

and Rs. 300, if the person is a dependent Children’s Education: District wise cash award for SSLC students which ranges from Rs.3000 to Rs1000. Medical: Medical grant up to Rs.500, if it is an accident case. Marriage & Maternity: Interest free loan of Rs.1200 along with Rs300 (grant) as marriage assistance. Financial assistance who those into go for sterilisation. Unemployment: Financial assistance in case of natural calamity like fish disease, fire, ban on trawling. Special Allowance: Provision for Hut insurance with 50% subsidy in paying insurance premium. Therefore up to Rs 3000, risk premium is Rs.6.75 and up to Rs.5000, risk premium Rs.11.25. Under craft/cattamaram insurance scheme, there is no subsidy and the risk premium is Rs.22 for every Rs.100.

The Board finds it difficult to get adequate funds for welfare activity without this amount.

10 Kerala Handloom Workers Welfare Fund (S) (KHNDLWWF, 1989)

The Kerala Handloom Workers Welfare Fund Act, 1989

Any person who is engaged in any activity related to Handloom Industry and who gets his/her wages directly or indirectly from the employer or contractor and all others who depend mainly on the Handloom industry for his/her livelihood are included (self employed). The scheme also covers their dependents.

Government: Twice the workers’ and self-employers’ contribution Employer: * 1% of annual turn over and an amount equal to workers contribution Employee: * Rs. 1 per month * Rs. 2 per month by self-employers

Pension: Rs. 100 per month. PF, Gratuity etc: Since the fund is an Insurance Fund, no provision for P.F gratuity and other lumpsum retirement benefit Disability, Death: Ex-gratia Rs. 5000 Children’s Education: Non-refundable advance for worker’s children’s education (maximum advance Rs.1000). Medical: Non-refundable advance not more than Rs.500 Marriage & Maternity: Nonrefundable advance of Rs.2,000 for marriage purposes. Unemployment: Provision for unemployment allowance. Housing: Non-refundable advance from housing loan of 12 month salary or his/her total contribution, whichever is lower. Special Allowance: No special schemes.


48407 as on 31.10.2003

Nil Nil


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11 Kerala Abkari Workers Welfare Fund (S) (KABWWF, 1990)

The Kerala Abkari Workers Welfare Fund Act, 1989 and Kerala Abkari Workers Welfare Fund Scheme 1990

Abkari-workers are arrack-foreign liquor workers who are engaged in it’s storage, bottling, transportation and sale, with 3 months continuous service and are not covered by the Toddy Workers Welfare Fund

Government: Rs. One lakh for pension purpose (1994-95) Employer: 15% of workers’ wage (including 5% gratuity) Employee: 10% of the workers’ wage

Pension: Minimum three years, 60 years, Rs. 200 to Rs.300 (maximum) per month.PF, Gratuity etc: At the time of retirement a member is entitled to obtain only gratuity as the retirement benefit and the net credit(balance) in the Provident Fund account is kept for financing their pension scheme. Disability Death: Ex-gratia Rs. 5000, Funeral expense Rs.500. Children’s Education: Scholarship for higher education (Pre-degree to professional course). Medical: So far no provision. Marriage & Maternity: No provision Housing: Provision for housing loan (refundable) of 12 months wages or his total contribution, whichever is lower provided he should have at least Rs 750 in the Fund. Special Allowance: No special schemes.


2000 as in 2003

Nil Due to the ban on arrack in the state, the arrack workers have ceased to be members in the fund. The board is presently rehabilitating these arrack workers.

12 Kerala Construction Workers Welfare Fund (S) (KCONWWF, 1990)

The Building and Other Construction Workers (Regulation of Employment and Conditions of Services) Act 1996 (Act 27 of 1996) The Building and Other Construction Workers (Regulation of Employment and Conditions of Services) Kerala Rules 1998 The Building and Other Construction

The scheme extends to two homogeneous categories of workers, namely (a) the Construction Workers (workers employed in any construction such as masons, carpenters, bricklayers, excluding supervisory functionaries like Engineers etc) and (b) Quarry Workers (workers engaged in quarrying including stone-crushing, but not including supervisors)

Government: 10 % of member’s initial contribution per annum Employer: * 1% of the construction cost* Yearly contribution made by the contractors (Rs. 100 to Rs.1000) Employee: Monthly contribution per member-slabs Rs.10, Rs. 15 and Rs. 25

Pension: Minimum one year membership, 60 years, Rs. 75 per month to Rs. 300 (maximum) per month (depending on service). Family Pension: Rs.100 per month Invalid Pension: Rs.150 PF Gratuity etc: Since the fund is an Insurance Fund, no provision for P.F, gratuity and other lumpsum retirement benefit. Disability, Death: Ex-gratia Rs.5000, Funeral expense Rs. 500. Children’s Education: Non-refundable advance of Rs.1000 per education purpose. Scholarship Rs.300 to Rs.1200 on the basis of merit. Medical: Non-refundable advance up to Rs. 500 will be provided for medical treatment. Marriage & Maternity: Non-refundable advance of not more than Rs 2000 from his contribution. Grant of Rs.500 at two times as Maternity benefit to Women


1070900 as in 2003

Nil Nil


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Workers Welfare Cess Act 1996 (Act 28 of 1996) The Building and Other Construction Workers Welfare Cess Rules

workers. Housing: Provision for housing loan (refundable) provided he should have three years membership. Special Allowance: Members can withdraw the required amount to pay insurance.

13 Kerala Agriculture Workers Welfare Fund (S) (KAGWWF, 1990)

The Kerala Agriculture Workers Act 1974 and The Kerala Agriculture Workers Welfare Fund 1990

All Agricultural Workers who are engaged in the agriculture operation within the age limit of 18-60 years and are covered by the Kerala Agricultural Workers Act 1974 are eligible to obtain welfare benefits of the fund.

Government: Nil Employer: Land Owners’ contributions are 0.5-1 hector: Rs. 10 per year and others (>1h.) Rs.15 Employee: Rs. 2 per month per worker

Pension: No provision PF, Gratuity etc: Only lump-sum retirement benefit. If a member crosses 40 years, he is entitled to Rs.25, 000. If it is three years (minimum), he will be paid Rs. 5,000. Disability, Death: Ex-gratia benefit Rs 1000. Children’s Education: Scholarship ranging from Rs.500 to Rs. 1500. Medical: So far no provision Marriage & Maternity: No provision Unemployment: No provision Housing: No provision Special Allowance: No special schemes.


1840900 as in 2003

The expenditure on the scheme is increasing and it is becoming increasingly difficult to meet this expenditure with the existing revenue level.

It started with the objective to regulate the service condition and provide welfare for the agriculture workers.

14 Kerala State Lottery Agents Welfare Fund (NS) (KLOTAWWF, 1991)


Lottery Agent: A person who is a regular agent and holds a valid identity folder as mentioned in Kerala State Lottery Rules 1977

Government: 20% of the members’ contribution Employer: Nil Employee: Category A/B Rs. 15 / 10 per month

Pension: No provision PF, Gratuity etc: Retirement age 60 years and above. Lump- sum retirement benefit depending on his service. If he has completed 40 years, he will be paid Rs. 62,700. Disability Death: Ex-gratia benefit for A-class members Rs.10000 and B-class members Rs.7000. Children’s Education: No provision Medical: So far no provision Marriage & Maternity: No provision Unemployment: No provision Housing: No provision Special Allowance: No special schemes.


3900 as in 2003

Nil Nil


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15 Kerala Document Writers, Scribes and Stamp Venders Welfare Fund (NS) (KDSVWF, 1991)


A person who functions as a Document Writer or as a Scribe or Stamp Vendor and is licensed under the Kerala Document Writer’s (Licence Rules) or the Kerala Manufacture and Sale Stamp Rule 1960). Membership is open to any person holding a valid licence and aged below 60 years.

Government: 10% of the members’ contribution Employer: Nil Employee: Category A/B Rs. 15 / 10 per month

Pension: No provision PF, Gratuity etc: Retirement age 60 years and above, lump sum retirement benefit depending on services. If he has completed 35 years, he will be paid Rs. 37,749. Disability Death: Ex-gratia benefit for A-class Members Rs.10, 000 and B-class members Rs.7, 000. Children’s Education: No provision Medical: So far no provision Marriage & Maternity: No provision Unemployment: No provision Housing: No provision Special Allowance: No special schemes.


3255 as in March 1994

Nil Nil

16 Kerala Auto Rickshaw Worker’s Welfare Fund (S) (KAURWWF, 1991)

The Kerala Auto Rickshaw Worker’s Welfare Fund Scheme 1991

An autorikshaw worker means a person employed directly or indirectly or by himself through ownership (self employed) of the vehicle (auto rickshaw) in a professional capacity (either a goods carrier or passenger carrier). The scheme is voluntary and the workers within the age group of 28 to 58 are eligible to join the Scheme.

Government: 10 % of the workers’ contribution Employer: Rs. 10 per month per worker Employee: Rs. 20 per month per worker

Pension: No provision PF, Gratuity etc: Retirement benefit depending on completed years of service. Retirement age 58. If he has completed 30 years, he will be paid Rs. 145264 Disability, Death: Ex-gratia Rs10, 000. Children’s Education: Not yet disbursed.Medical: Not yet disbursed. Marriage & Maternity: Marriage assistance not yet disbursed. Housing: Provision for Nonrefundable housing loan from his contribution. Special Allowance: Non-refundable loan for Purchasing auto-rickshaws (75%).


18500 as in 2003

Nil Nil

17 Kerala Tailor’s Welfare Fund (S) (KTAWWF, 1995)

The Kerala Tailor’s Welfare Fund Act 1994

Tailors are defined as any person who is directly or indirectly employed by employers, contractors, agents or by himself through ownership of tailoring shops.

Government:10 % of the workers’ contribution Employer: Rs. 5 per month per worker Employee : Rs. 10 per worker and Rs. 15 per self-

Pension: Rs.100/- (disability pension), Rs.100/- to Rs.430/- (Retirement benefit), Rs. 100/- to Rs.258/- p.m. (family pension), Marriage: Rs.1000/- for 2 times, Maternity benefit: Rs.600/- for 2 times, Ex. Gratia: Rs. 10,000/-, Scholarship: Rs.600/- to Rs.300/-, Cash Award: Rs.500/- to 10th passed student.


2,99,300 as in 2003

Nil Nil


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employee per month

18 The Kerala Beedi and Cigar Workers Welfare Fund (1996)

The Kerala Beedi and Cigar Workers Welfare Fund Act 1995 and The Kerala Beedi and Cigar Workers Welfare Fund Scheme 1996

All beedi and cigar workers employed in the co-operative sector and private sector, and self-employed person in the beedi and cigar industry come under the purview of this scheme.

Government: Equal to the contribution by the employees, Employers: Rs.6/- per mensem per worker, Employee: Rs.3/- for worker and Rs.5/- for every self-employed person per mensem

Pension: Rs. 100/- p.m. Ex-gratia: Rs.10,000/- death or disablement, Marriage benefit: Rs.2000/-Maternity benefit: Rs.500/-


39000 as in 2003

High rate of wages when compared to the neighbouring states, financial constraint, prohibition of smoking in public areas by the High Court of Kerala have weakened the industry.

Nil

19 Welfare Scheme Implemented by the Commissionarate of Labour (a) The

Agricultural Workers Pensions Scheme (1980)

G.O (P) No31/80/LbR Dated 26-04-1980

Agricultural workers who have completed 60 years of age and whose annual income does not exceed Rs.1500/- and who are members of the Kerala Agricultural Workers Welfare Board are eligible.

NA

Pension: Rs.120/- for those who have completed 60 years of the age and whose annual income does not exceed Rs.1500/-p.m.

Labour department through local bodies

620000 as in 2004

Nil

Nil

20 The Kerala Barbers’ Welfare Scheme (2004)

The Kerala Barbers’ Welfare Scheme 2004

Meant for Barbers’, beauticians and employees of beauty parlours in the age group of 18 to 50 years.

Government: Rs.12/- per worker Employee: Rs.20/- per month

Pension: Rs.100/- to Rs.250/- per month Retirement benefit: Rs.62750/- for 42 years service Death assistant: Rs.10500/- and Rs.1000/- as Funeral expenses Maternity benefit: Rs.1000/- for twice, Marriage benefit: Rs.2000/- Disable pension: Rs.1000/-per month.


50000 (expected)

Nil Nil


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Educational benefit: Rs.500/- to Rs.1500/-

21 The Kerala Laundry Workers’ Welfare Scheme (2004)

The Kerala Laundry Workers’ Welfare Scheme 2004

Meant for laundry workers and workers in the dry cleaning industry who are between 18 and 50 years of age

Government: Rs.12/- per worker Employee: Rs.20/- per month

Pension: Rs.100/- to Rs.250/- per month Retirement benefit: Rs.62750/- for 42 years service Death assistant: Rs.10500/- and Rs.1000/- as Funeral expenses Maternity benefit: Rs.1000/- for twice, Marriage benefit: Rs.2000/- Disable pension: Rs.1000/-per month. Educational benefit: Rs.500/- to Rs.1500/-


25000 (expected)

Nil Nil

TAMIL NADU 22 Old Age

Pension (1962)

Old age Pensions - Normal scheme (1962)

The minimum age limit for the eligibility to old age pension is 60 years, in the case of destitute, who are incapacitated to earn their livelihood due to blindness, leprosy, insanity, paralysis or loss of limbs. For other destitute older persons the minimum age limit for eligibility is 65 years. The beneficiaries of the scheme should not have any source of income. Should not be professional beggars, should not be supported by son or son’s son aged about 20 years. Should not possesses property of value more than Rs.5000/- The minimum age limit for the eligibility to old age pension is 60 years. In the case of destitute, who are incapacitated due to blindness, leprosy, insanity, paralysis or loss of their limbs. For other persons, the age limit for eligibility is 65 years. The other conditions of eligibility are given below: No source of income Not habitual beggars Do not have a son of the age of 20 or above and not supported by son or son’s son.

For the normal Old Age Pension Scheme, out of the total of Rs. 200/- per mother received by those who are 65 years or more, the Central Government's contribution is Rs.75/- per month.

Pension: Rs. 200/- per month is being given A free saree/Dhoti for Deepavali and Pongal festivals. (Two dhoties and two sarees per person); 2 Kgs. Of free rice per month for those who partake in noon meals under free meals programme (OR) 4 Kgs of free rice per month for those who do not partake in free meals programme (OR) 4 Kgs of free rice per month for those who do not partake in free meals programme.

4.68 lakh as on 31.01.2005


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Do not own any property values more than Rs.1000/-. Could not work and earn livelihood. Taking into consideration the increase of prices over time, the Government have decided to increase the Old Age Pension amount from Rs.200/- to Rs.400/- to all categories of Old Age Pensioners Viz. Old Aged persons, Physically handicapped destitutes, destitute Widows, destitute Agricultural Labourers and deserted wives. The Government, accordingly, direct that the Old Age Pension to all the eligible beneficiaries in the existing five categories mentioned above be raised to Rs.400/- per month from Rs.200/- p.m. with effect from 01-08-2006.

23 Pension Scheme for the Destitute Physically Handi-capped (PHP, 1974)

Physically handicapped pensions (1974).

Under this scheme, Physically handicapped destitute persons, whose permanent disability is 50 percent or more, are eligible for the pension. The age limit prescribed is 45 years. Under this Scheme, a District Level Committee is functioning with the Collectors, as Chairman, the District Medical Officers and the District Social Welfare Officers as Members to examine the applications received from the physically handicapped persons and sanction pension to them considering the individual hardship without reference to age rules. Under this scheme, leprosy patients are also eligible. The other conditions under this scheme are the same as those applicable in the case of Old Age Pension (Normal Scheme). Should be 45 and above. The Committee headed by the Collector can relax and grant pension in special cases even if he/she is below 45 years. Disability at 50% and above. Do

Pension: Rs.200 per month. A free saree/dhoti for Deepavali and Pongal festivals. (Two dhotis and two sarees per person) 2 Kgs. Of free rice per month for those who partake noon meals under free meals programme (OR) 4 Kgs. Of free rice per month for those who do not partake in free meals programme. (OR) 4 Kgs. Of free rice per month for those who do not partake in free meals programme.

58618 as on 01.01.2005.


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not have any property valued it more than Rs.1000/-. Not fit for any work. No source of income.

24 Destitute Widows Pension Scheme (DWP,1975)

Destitute Widow’s Pensions (1975)

The Government has extended the scheme of Old Age Pension to the Destitute Widows. There is no age limit for this scheme. Under this scheme the Destitute widows who have not remarried and who are having legal heirs completed 18 years of age and above are also eligible for pension. The other conditions under this scheme are the same as those applicable in the case of Old Age Pension (Normal) Scheme.

Pension: Rs.200 per month. A free saree/dhoti for Deepavali and Pongal festivals. (Two dhotis and two sarees per person) 2 Kgs. Of free rice per month for those who partake noon meals under free meals programme (OR) 4 Kgs. Of free rice per month for those who do not partake in free meals programme.

480000 as on 31.01.2005

25 Destitute Agriculture Labourer’s Pension (DALP, 1981)

Destitute Agricultural Labourers Pension (1981).

The Government have extended the scheme of Old Age Pension to the Destitute Agricultural Labourers. Under this scheme, the minimum age is fixed as 60. The other conditions under the scheme are the same as those applicable in the case of Old Age Pension (Normal) Scheme. Should be of the age of 60 and above. Living without income. Not habitual beggar. Property value not more than Rs.1000/-

NA Pension: Rs.200 per month. A free saree/dhoti for Deepavali and Pongal festivals. (Two dhotis and two sarees per person) 2 Kgs. Of free rice per month for those who partake noon meals under free meals programme (OR) 4 Kgs. Of free rice per month for those who do not partake in free meals programme.

State Government

91446 as on 31.01.2005

The agriculture wages earned by the aged are not adequate to bring the target population above destitution, or the aged beneficiaries are not doing any work and are totally dependent on DALP. In many of the districts, agricultural operations are seasonal and hence

NA


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the target population may still be below the subsistence level.

26 Destitute/ Deserted Wives Pension Scheme (1986)

Destitute deserted wife’s Pension (1986).

The scheme has been extended to the benefit of the wives of those who are not less than 30 years of age, deserted by their husband for more than five years or obtained legal separation certificate from the competent Court of Law. The deserted wives are eligible for pension under this scheme even though they are having legal heirs who have completed 18 years of age and above. Other conditions under this scheme are the same as those applicable in the case of Old Age Pension (Normal Scheme).Should be 30 years old or above. Should be living separately for at least five years. Should be legally married. As per Government order Ms.No.92, Social Welfare and Noon Meal Project dated 2.6.98, destitute widows who are having legal heirs of 18 years and above are also eligible for pension according to their eligibility. Should be a permanent resident of Tamil Nadu. Without income and property value not more than Rs.1000/-.

Pension: Rs.200 per month. A free saree/dhoti for Deepavali and Pongal festivals. (Two dhotis and two sarees per person) 2 Kgs. of free rice per month for those who partake noon meals under free meals programme (OR) 4 Kgs. of free rice per month for those who do not partake in free meals programme.

80,758 as on 31.01.2005

WEST BENGAL 27 West Bengal

Building and Other Construction Workers Welfare Board

The Building and Other Construction Workers' Welfare Cess Act, 1996

Building and construction workers

Pension Benefits: On completion of 60 years of age the worker is eligible for pension at Rs.150/-. Medical expenses for treatment of major ailments: Maximum amount of Rs.2000/- per annum paid to a registered worker towards medical expense for the treatment of the beneficiary or his


74


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dependents suffering from TB, cancer, heart disease, kidney disease, leprosy etc. Where an operation is involved, a maximum amount of Rs.15000/- may be sanctioned. Maternity benefit: Board to sanction a sum as may be determined for maternity benefit not more than twice. Assistance in case of accident: Rs.200/- for the first 5 days and Rs.20/- per day for the remaining days subject to a maximum of Rs.1000/- in case of disability, up to Rs.10000/-. Payment of death benefit: Rs.10000/- to nominee. If the death is due to an accident during the course of employment, the nominee or dependent of the beneficiary may be paid Rs.30000/-.

TRIPURA 28 Tripura Beedi

Sharamik (old age pension) Scheme (2001)

Tripura Beedi Sharamik (old age pension) Scheme (2001)

A person who is fully engaged and dependent on manufacture of beedi for his/her livelihood and has attained the age of 65 years

Pension: Rs.125/-p.m.

PUNJAB 29 Old Age

Pension (1964)

The eligibility for the pension scheme is the attainment of the age of 65 years for men and 60 years for women. There is an economic limit of Rs. 1,000/- for the monthly income, if the applicant is single and up to Rs. 1,500/- per month for a family of two. Further, he/she should be a bona fide resident of Punjab and should have been residing in Punjab for at least for 3 years.

Pension: Rs.200 per month per beneficiary is paid on a quarterly basis through designated banks.

1078448 as in 2006-07

30 Financial Assistance to Dependent Children (1968)

The benefit of a similar scheme is also available for orphans and destitute children below the age of 21 years. This scheme was also started in 1968. The criterion for eligibility under this scheme is that the income of the

Pension: Rs. 200/- per month per beneficiary, which is to be paid quarterly.

72463 as on (2006-07)


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child’s mother or father/guardian should not exceed Rs. 1000/- per month. In cases where the parents are alive, and the joint income of both the mother and father does not exceed Rs. 1500/- per month, financial assistance is restricted to only two children. Relaxation in the income limit to the extent of Rs. 300/- per child for a maximum of two children is admissible.

31 Financial Assistance to Disable Persons (1982)

Handicapped persons with severe disability or permanent infirmity caused by blindness, retardation or chronic illness are eligible for a pension of Rs. 200/- per month. If the income of the person concerned and his/her spouse or parents is not more than Rs. 1000/- per month.

Pension: Rs.200/-per month. 92531 as in 2006-07

HARYANA 32 Old Age

Pension Scheme

Old persons who are unable to sustain themselves from their own resources, who are residents in Haryana and aged 60 years or above.

Pension: Rs.200/- is provided to each of the beneficiaries.

At present, around 264000 pensioners

Pension is disbursed by the 7th of each month through the Patwaris under the supervision of the Circle Revenue Officer

33 Pension to Widows and Destitute Women

Widows and destitute women, or married women who have been deprived of financial support from their husbands and whose income from all sources is less than Rs.10, 000/- per annum. The pensioner should be 18 years of age or above and a domicile of Haryana.

Pension: Rs. 200/- per beneficiary The new pension is provided @ Rs.350/- per month. per beneficiary.

Near about 3,75,029 beneficiaries are getting pension at present

Pensions are disbursed by 7th of every month as the case of old age pension


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To provide social security to widows and destitute women or married women who have been deprived of the financial support from their husband and their income from all sources is less than Rs.10, 000/-per annum. A person of Haryana domicile, aged 60 years or above is eligible for the pension. New pensions are being sanctioned every month and disbursed by 7th of every month like Old Age Allowance.

34 Pension to Physically Handicapped Persons

People with a minimum of 70 per cent disability including the blind, deaf and dumb, those with very low IQ, and the mentally retarded. The pensioners should be domiciles of Haryana and age 18 years or above. Their income should not exceed Rs.10, 000/ - per annum. The handicapped pension aims at providing social security to handicapped people with a minimum of 70% disability including the blind, deaf & dumb 100% and 50 % IQ, mentally retarded Under the scheme Rs.300/- p.m. and for 100% physically handicapped Rs. 600/- per month per beneficiary is provided The pensioners should be Haryana domicile and are 18 years of age or above.

Pension: Rs. 200/- to all beneficiaries Near about 98,461 pensioners are being covered under the scheme at present.

The pensions are disbursed by the 7th of every month.

UTTAR PRADESH 35 Old Age Kisan

Pension Yojana

The beneficiaries under this scheme receive Rs. 125/- per month on reaching the age of 60 years. The scheme also provides a grant to destitute widows for the marriage of

Rs.125/- per month on reaching the age of 60 years.

About 12.3 lakh persons as in 2002.


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their daughters. 36 Viklang

Pension Scheme

Destitute and handicapped persons with a monthly income of below Rs. 225/-.

Pension: Rs.125/- per month

MADHYA PRADESH 37 Welfare

Boards for Unorganised Workers for the Rural and Urban Areas

Applicable to the 36 employments specified in the Schedule

Every member will contribute to the Welfare Fund Contribution of the employer based on the number of workers.

The benefits to be extended to all the members who have contributed to these Funds are: old age, family and disability assistance and pension, loan for purchase or construction of house, interest subsidy for housing loan taken from a housing finance institution, assistance for education like scholarship, loan, interest subsidy for education loan, cash award for meritorious students, loan for tools and small machines, interest subsidy for loans for supplementary income- generating activities, marriage assistance, medical assistance, maternity assistance, group insurance, assistance for payment of insurance premium, funeral assistance and ex-gratia payment in case of death. These benefits are normally credited into the bank account of the member.

Constituted under the Madhya Pradesh Unorganised Labour Welfare Act, 2003 and Madhya Pradesh Unorganised Welfare Rules, 2005.


78

Annex 2: NCEUS Proposals for Micro-Pensions58 “A large section of workers who are able to secure employment in the organised (formal) sector of the economy have generally also been able to secure some protective social security for themselves and their families. However, it must be reiterated that more than 91 per cent of India's workforce consists of informal workers working either in the unorganised informal sector (85 per cent) or in the unorganised formal sector (6 per cent). A large majority of them face the problem of ‘deficiency’ or capability deprivation (of basic needs) as well as the problem of ‘adversity’ (arising out of such contingencies as sickness and accidents) As we have seen in the last section, the social security schemes that are currently in place hardly cover even 5 to 6 per cent of the estimated number of total informal workers of 362 million (as of 1999-2000). With the exception of a small number of States with some social security cover for workers in the unorganised sector a majority of the States do not offer any cover, especially for addressing such core concerns as healthcare and maternity. Despite their significant contribution to the national income workers in the informal economy are continuously exposed to various types of risks and frequently face crisis situations. It is not difficult to see why the poor are among the most vulnerable in any society. A shock that has a relatively small impact on the non-poor can be a cause for great concern for the poor, since even marginal downward fluctuations in income can push them to destitution levels. A brief review given earlier in Annex 1, of various Central and State government initiatives that address the social security needs of the population showed that there are very few schemes addressed specifically for the unorganised workers qua workers. Kerala and Tamil Nadu are the only States which offer some reasonable coverage of both old age pension for the aged poor and other protective social security schemes for the workers in the unorganised sector. Worry about their financial status in old age has been a major source of concern for the informal workers. The protection afforded to the aged by their families should not be exaggerated, or used as an excuse not to provide old age security, for a variety of reasons, two of which need to be emphasised.

1. First, adults in poor households themselves face insecurity of work and income to lead a life of security and some dignity.

2. Second, the presence of the poor aged adds to their burden and further deprivation of the family as a whole.

Therefore, some provision for the social protection of the aged poor should be part of any national social security initiative so that it would enable the aged to contribute a part, however modest, to the household income, to enhance the value of their presence, and to strengthen the family bond. The Commission has proposed old age security as one of the elements of National Minimum Social Security. The Commission has recommended non- contributory old age pension of Rs. 200/- per month for all BPL unorganised workers. As regards non-BPL workers, the Commission has recommended a scheme of contributory Provident Fund wherein at the age of 60 years, the worker has the option of withdrawing the accumulated amount in his credit or of purchasing an annuity for life with the accumulated amount. An added feature for the non- BPL workers is that in the scheme, the Provident Fund amount is coupled with unemployment relief by permitting the worker to withdraw a half or a quarter of his contribution, depending on the period of unemployment, subject to a lock-in period of ten years. 58 Source: NCEUS Official Documents (2006 and 2007)


79

The Commission has, therefore, recommended that the above-mentioned elements form a National Minimum Social Security Scheme and should be implemented with the backing of a national legislation. To this end, the Commission drafted a bill titled 'The Unorganised Sector Workers' Social Security (Draft) Bill, 2005' and submitted it to the Government of India. The Draft Bill was also sent to the State governments, trade unions and other stakeholders and placed in the public domain for wider discussions. After further consideration of the comments and suggestions received, the Commission has re-formulated the Bill as 'The Unorganised Workers' Social Security (Draft) Bill, 2006'. 1. Two types of old age security have been suggested by the commission. These are:

a. Provident Fund to all APL workers (who are required to contribute to the national social security scheme ), with unemployment insurance where necessary, and

b. Monthly old age pension to all poor (BPL) old aged (60+) workers,

The latter is described below In case of poor workers, it is desirable that they be entitled to a minimum level of protection regardless of the year of inception of the scheme and the number of years of their contribution In the case of BPL workers, the Commission has throughout taken the view that their contribution towards the premiums shall be payable by the government. The Commission has suggested a premium of Rs.565/- per worker per annum towards old age security of the informal workers. However, with this premium, the pension available to the old-aged worker would depend on the age of entry and the corresponding years of contribution and no minimum old age protection can be guaranteed. The Commission has carefully considered the various options through which a minimum level of protection may be available to all old-aged poor workers. It has noted that the Government of India already funds the National Old Aged Pension Scheme, under which destitute old-aged persons, above the age of 65 years, are being provided a monthly pension of Rs.2001- per month. The Central allocation for the Scheme has been enhanced to Rs.1430 crore in the 2006-07 budget, and the Finance Minister has desired that the States should use additional resources to enhance the monthly pension to Rs.4001- per month. The Commission has analysed the implications of extending the National Old Aged Pension Scheme to all old-aged poor workers above 60 years of age. In order to arrive at the estimates of the numbers of old-aged BPL workers for the years 2006-07 to 2010-11, the following assumptions have been used.

• The share of the aged (60+ years) in the total population is assumed to remain constant in the next few years at 7.47 per cent (as per the 2001 Census).

• The ratio for the BPL informal worker population has been taken to be 0.23, based on the poverty ratio among informal worker households in 1999-2000, and the average Workforce Participation Ratio (WPR) is taken to be the same as that for the prime age (35- 55 years) general population in 1999-2000 (700 per thousand persons).

These are admittedly somewhat crude estimates since both the longevity among the poor workers and the WPR are likely to be different from those of the general population. The estimates of the old-aged poor workers thus derived are given in Table 2. The Table also estimates the total financial cost of providing each of these workers a pension of Rs.2001- per month.


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The calculations of the Commission presented in Table show that if one were to grant pension at the rate of Rs. 2001- per month to all BPL (unorganised) workers aged 60 years and above, it would cost the Government Rs. 3,244 crore in 2006-07, which would increase to Rs. 3434 crore in 2010-11.

Table 2.1: Number of Eligible BPL Old-aged Workers (60+ Years) and Costs of Pension (@ 200 pm) (Rs. in Crore)

2006-07 2007-08 2008-09 2009-10 2010-11 Estimated number of old-aged workers (60+years) (crore)

1.35

1.37

1.39

1.41

1.43

Pension @2400/year/BPL (60+workers) Centre States

3244 3244 0

3292 3292 0

3340 3340 0

3387 3387 0

3434 3434 0

Note: The BPL worker does not pay anything but his contribution is paid by the centre taking its share to 5/6th of Rs.565/- while the balance of the total premium of Rs.565/- comes from the state. The Commission recommends the payment of a minimum pension of Rs. 200/- to all the poor (BPL) informal workers on completion of 60 years of age. This can be done by expanding the NOAPS, which, at present, is confined only to those who are above 65 years and are identified as destitute. The proposed pension amount roughly works out to one-half the amount required (on a per capita per month basis) to cross the poverty line at 2005 prices. However, the amount of pension in excess of Rs. 200/- per month may be topped up if the state governments so desire. While recommending a pension for all old-aged poor workers, the Commission notes that there is an overlap as many of the workers thus identified may be destitutes and eligible for old-age pension under the existing NOAPS. Moreover, the prime age work force participation rates (WPR) also represent an upper boundary, as the WPR is lower in the case of other working ages. Hence the Commission's estimates represent the upper bound as far as costs to be incurred on providing pension to the BPL workers are concerned. The Commission, however, believes that pension cover should extend to all the aged poor and should not be just limited to informal workers. This is not only morally justified but also more efficacious for reasons of implementation.”


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Annex 3: The New National Pension Scheme and its Salient Features59

“The system comprises one (or more) central recordkeeping agency (CRA), a set of pension fund managers (PFMs), point-of-presence agencies (PoPs), and a two-pillar structure. • The CRA shall maintain records, accounts, and effect all instructions regarding subscription,

switching of options, and withdrawals, by the subscriber (any individual who joins the NPS). The subscriber may access the CRA directly for information.

• The PFMs will offer a set of schemes with varying risk-return profiles and manage the assets of subscribers60. Every subscriber shall have an individual pension account (IPA). He/she has the option of selecting the PFMs and schemes composing his/her portfolio.

• The IPA will be portable in case of change of employment. The subscriber cannot exit from the system except as specified by notification of the government. The current notification specifies two options: (1) if the subscriber chooses to exit at the normal retirement age (60 years), he/she shall use at least 40 percent of accumulated pension wealth to purchase a lifetime annuity from a life insurance company; (2) if the subscriber chooses to exit the system any time prior to retirement, the minimum conversion is 80 percent of the accumulated pension wealth.

• There is a two-tier structure for government employees. Tier-I will be the core level with the employee’s 10 percent contribution matched by the government, and no withdrawals authorized until exit. Tier-II provides an option to contribute a further amount into a withdrawable account, which will not have any contribution by the government.

• There will be no minimum guaranteed pension (the so-called “first pillar”). The PFRDA shall regulate the NPS and other pension schemes under its purview. It comprises a Chairman and up to 5 members appointed by the government for a five-year term. It will register and regulate all intermediaries, including CRAs, PoPs, and PFMs. It will also be responsible for protecting the interests of subscribers and establishing a grievance mechanism. It will approve the schemes and norms (including investment guidelines) for management of pension assets and ensure standardization/dissemination of information about performance of funds.”

Annex 4: Political Parties and Their Stand on Pensions

No change in Left stand on pension Bill, says Karat61

NEW DELHI: Dismissing allegations that it has diluted its stand on the proposed Pension Fund Regulatory Development Authority Bill, CPM general secretary Prakash Karat on Monday said Left would oppose government's interim arrangement to place 5% of pension fund in the stock market. Instead, Karat said, in the interim period the entire pension scheme as well as the fund should be left at the disposal of Employees Provident Fund Organisation management and EPFO's Central Board of Trustees should decide on where to invest the fund. "We would ask the government that during the interim arrangement the scheme as well as the fund should go to EPFO management," Karat said.

59 Adapted from Hélène K. Poirson, (2007) “Financial Market Implications of India’s Pension Reform” IMF Working Paper 60 The current notification specifies four types of schemes of various risk-return combinations, reflecting differing combinations of government securities, corporate bonds, and equity shares, including an option with 100 percent investments in government bonds. 61 Times of India - 6 Feb 2007


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A senior leader also said Left's stand on the PFRDA Bill has not changed at all. He said the Left not only wants public fund managers but also wants that the return to the subscriber should not be less than 50% of his last salary. Government is not willing to give such an assurance. "Our position is well-known. Left-ruled Kerala, West Bengal and Tripura made it clear at the finance ministers' meeting last month that they are opposed to the new scheme," the Left leader said. As for difference of opinion among the Left-ruled states on the new pension scheme, the senior leader admitted that unlike West Bengal, Kerala does not see itself making huge tax collections due to VAT. "Kerala does not feel that state tax collections would go up the way West Bengal has projected. But the three states have taken a united stand," he said. The Left leader also added that the finance ministry is disputing the calculation done by West Bengal finance minister Asim Dasgupta on tax collection and the pension Bill. However, Dasgupta had said that the state government had collected figures from different treasuries.

Annex 5: UTI Mutual Fund ties up with India’s largest bank

UTI Mutual Fund ties up with India’s largest bank62 UTI Mutual Fund (UTI MF) and State Bank of India have entered into strategic tie-up for distribution of UTI MF schemes. Under the agreement, State Bank of India will offer the entire bouquet of UTI MF’s schemes across the bank’s selected branches 25 Mar 2006 , Mumbai : UTI Mutual Fund (UTI MF) and State Bank of India have entered into strategic tie-up for distribution of UTI MF schemes. Under the agreement, State Bank of India will offer the entire bouquet of UTI MF’s schemes across the bank’s selected branches. On the occasion, Shri U K Sinha, Chairman and Managing Director, UTI AMC said, “The tie-up with State Bank of India, who are also our Sponsors, endorses the commitment of two giants of the financial market to the retail investors of this country. With this tie-up customers will get easy access to invest in the various schemes of UTI MF closer to their doorsteps at the branches where they do their banking transactions.” “State Bank of India has a dominant presence across the country and is also present in various parts of the world. This tie-up will be mutually rewarding.” Shri Sinha added. Shri A K Purwar, Chairman, State Bank of India said, “The tie up between the two largest players in their respective fields will enable State Bank of India to leverage its unmatched branch network and customer base to cross sell a range of Mutual Fund products and thus open up a new revenue stream. For UTI Mutual Fund, the tie up with State Bank of India will enable it to tap into SBI’s huge network and customer base.” “The tie up with UTI Mutual Fund will be a first for State Bank of India in vending a third party’s Mutual Fund products. Initially State Bank of India has identified 48 centres across the country wherefrom UTI MF products will be sold.” Shri Purwar added About UTI Mutual Fund UTI Mutual Fund is a SEBI registered mutual fund whose Sponsors are State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India. UTI Mutual Fund is the largest mutual fund in the country with assets under management of over Rs.27600 crore and investor accounts of over 7 million under its 57 domestic schemes (as of February 28,2006). UTI Mutual Fund has a wide distribution network comprising 68 Financial Centers (UFCs),276 Chief Representative offices, 103 Chief Agents and around 22000 AMFI certified

62 Source: Adapted from UTI, (2005-06), The Information Company Private Limited


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Financial Advisors. UTI Mutual Fund also reaches out to its investors through tie-ups with several Banks and Department of Post. About State Bank of India State Bank of India, the country’s largest Bank and along with its seven Associate Banks has the largest network of more than 13800 branches in India. State Bank of India and its Associates have been cross selling various products to its customers. They are Corporate Agents of SBI Life Insurance Co. Ltd. for life insurance products, which are sold through around 9,000 branches of the State Bank Group. Mutual Fund products of SBI Funds Management (P) Ltd. are also sold through branches of State Bank group. Similarly, State Bank Credit Cards are also available through the Group’s branch network. While all these products are from State Bank’s own stable, State Bank of India has tied up with New India Assurance Co. to market non-life products across its network.

Annex 6: Inauguration of Micro-Pensions at Shepherd

Chidambaram launches `Micro Pension' Says it will ensure financial protection to rural people Union Finance Minister P. Chidambaram launched the UTI Mutual Fund's `Micro Pension' scheme for women workers of the unorganised sector in the State here on Friday. Initially the scheme will cover 5,100 members of the SHEPHERD (Self-Help Promotion for Health and Rural Development), a non-governmental organisation. Mr. Chidambaram said workers in the unorganised sector accounted for 20 per cent more than those employed in the organised sector; a vast majority of them were women. Of the total savings of 32.4 per cent, 22 per cent accounted for household savings, mainly by women. While 11 percent the money saved in the households was through financial savings and the rest was in the form of property. He said the scheme would ensure financial protection to rural people and called upon the unorganised sector workers to take advantage of it. Mr. Chidambaram said that till a few years ago the Centre was offering refined benefit pension to government employees. In 2004, it introduced the new refined contributory pension scheme to ensure their economic security after retirement. In a big and developing country like India, the Government could not guarantee all benefits to the people. It was for the people to ensure their security after retirement. Hence, there was a re-thinking across the world on providing social security to the people in their old age. U. K. Sinha, Chairman and Managing Director, UTI Asset Management Company Ltd, said the micro-pension scheme would enable the unorganised women workers to share the benefits of the capital market and pave the way for their empowerment. It would spread the habit of regular savings among women in the low-income group. Two women members of the SHEPHERD handed over a cheque towards the first contribution for the pension scheme to Mr. Chidambaram.


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Annex 7: The Collapse of US 64 Land mines waiting to blow - K. A. Anantharam, 4 July 2001 So, it has finally happened! The country’s largest mutual fund, with trust as its middle name, has sent shockwaves across the country. By barring trading in its flagship scheme, US-64, the Unit Trust of India (UTI) has jolted the retail investing community like never before. However, it is not very surprising that this action has been taken. The writing was clear on the wall for some time now, that all was not well at the country’s largest fund. The government has, as usual, bolted the door after the horse has fled! Seeking, and getting, the resignation of PS Subramanyam, the chairman of UTI, is not the answer to the problem that bedevils UTI. True, as the chief honcho of the fund, the buck stopped with Mr. Subramanyam and he had to go. However, the problems with UTI are more endemic. It would take more than just the scalp of the chairman to bring glory back to India’s largest mutual fund. In a closed environment UTI was always top dog, even if its investment practices were, according to many leading financial experts, questionable. For many decades the UTI was used to settle scores on the stock markets – thanks to the interference the political masters managed to wield over the institution. UTI has always been at the receiving end of many criticisms. Its investment policies were never research-driven, instead they were more influence-driven. It was always slow in spotting trends in the stock markets and always tardy in getting in and exiting at the right time. It was never customer-focussed. Its investments were too skewed in favour of equity. The list goes on. As long as the financial markets were closed and controlled it got away with all its inefficiencies. But with the liberalisation of the financial markets, its weaknesses became its Achilles heel and threatened its very survival. Instead of aggressively seeking to restructure and repair the damage, its management behaved like ostriches with their heads in the ground and carried on as if nothing had happened, with the net asset value (NAV) of its funds consistently below par. UTI never made any attempt to instil any confidence in its retail investor for its various schemes. Never known to be transparent in its reporting, it added to the shroud of mystery around its operations by refusing to bring its flagship scheme, US-64, under the purview of the capital markets regulator, Securities and Exchanges Board of India (Sebi). It chose to do this behind a veil of legal interpretations and only added to the opacity of its operations. While the coming days would hopefully set in motion a renewed vigour in cleaning the Aegean stables at UTI, does this spell the end of the road for the mutual fund industry in the country? The question most retail investors must be asking themselves is: "Are investors’ funds safe in the hands of mutual funds?". Mutual funds are supposed to relieve small investors from the headaches of investing in turbulent stock or other capital-instrument markets. With a plethora of financial tools and research analysts on their rolls, mutual funds are supposed to safely invest the monies that others have entrusted to them. The funds give the investors a good return on their portfolio in return for a small management fee. So, theoretically, mutual funds are supposed to be safe avenues for small investors to park their hard-earned money. However, if a recent study conducted by global consulting firm, PriceWaterhouseCoopers (PwC), is anything to go by, this need not be the case! The Investment Management and Global Risk Management practice of the firm released a report, not so long ago, that calls into question the risk management capabilities of most mutual funds in the country. The study was to identify the awareness and importance of the risk management framework in the Indian investment management industry and also to identify the extent of implementation, if any, of the risk


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management framework in these organisations. The study covered asset management companies and their associated service providers like transfer agents and custodian and fund accountants who, together, managed an asset base of over Rs. 16,500 crore spread across 86 open-ended and 7 close-ended funds. The risks covered included regulatory risks, technology risks, service provider risks, personnel risks, marketing risks and operational risks. While the industry as a whole agreed that strong board level commitment and clear identification of lines of responsibility and accountability are critical to the successful control of risk, there was an alarming rate of more than 50 per cent of the leading funds studied which did not have documented risk management procedures or a dedicated risk manager. To add to the confusion is the fact that over 40 per cent of respondents who claimed to have some form of risk reporting, were not sure if the risk reporting procedures were understood organisation-wide or whether failures are dealt with on a timely basis. The rampant competition in the investment management industry, coupled with the relaxation of controls in the capital and foreign exchange markets posed the biggest challenge to the players in the industry. The key risks were identified as "poor investment performance", "break in client service" and "lack of management information". Despite these glaring deficiencies most funds had not initiated steps to mitigate the risk factors and continue to function without proper risk management strategies. According to Kersi Vachha, the practice leader for India of the Investment Management Practice of PwC, Indian fund managers are faced with a pressure to provide higher returns, reduced time lines for entering the market with newer products and reduced profit margins. He says that in such an environment it becomes all the more imperative for investment management firms to manage their risks well and avoid failures. If the funds have got away with this to date, it is because of lack of poor investor education. What is also surprising that foreign-pedigree funds, which in advanced markets like the US, Canada, UK and Hong Kong have integrated risk management systems and dedicated risk managers, do not see any need for such practices in their Indian operations. If the UTI debacle is not to be repeated across the mutual fund industry, then it becomes imperative that the industry and leading bodies like Association of Mutual Funds in India (Amfi) take it upon themselves to introduce robust risk management practices in their Indian operations. These practices should be enterprise-wide and should be woven in the fund’s day-to-day management and not restricted to a ceremonial risk manager’s position. While most of the investment management firms accepted whole-heartedly that an integrated, enterprise-wide risk management system is the need of the hour, very few have done anything concrete to move in this direction. A detailed questionnaire sent to about 15 leading mutual funds in the country by this author on the presence and extent of risk management practices in their funds did not elicit a single reply. Clearly reiterating the findings of the PwC report. In addition to all the regulatory measures that the authorities may adopt pursuant to the UTI failure, it is incumbent on the mutual fund industry to put its house in order and adopt more stringent measures to ensure the safety of the funds small retail investors have entrusted them with. In the absence of this, mutual funds in India are land mines waiting to blow!!


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Annex 8: SEWA Bank Pension Plan Products Product Offers Six Categories: • Get Lump Sum Amount At Maturity • Get Pension per month for Life Time after maturity age • Get Pension per month for Next Five Years after maturity age • Get Pension per month for Next Ten Years after maturity age • Get Pension per month for Next Fifteen Years after maturity age • Get Pension per month for Next Twenty Years after maturity age Pension Product: 1 Lump Sum Amount At Maturity Saving Amount Rs. per month

Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.500 18 42 90743 151238 302475 453713 604950 756188 907425 1512376 19 41 84310 140517 281034 421551 562068 702585 843102 1405170 20 40 78309 130515 261030 391546 522061 652576 783091 1305152 21 39 72710 121184 242368 363552 484736 605920 727104 1211839 22 38 67487 112478 224956 337435 449913 562391 674869 1124782 23 37 62614 104356 208712 313069 417425 521781 626137 1043562 24 36 58067 96779 193557 290336 387115 483893 580672 967786 25 35 53825 89709 179418 269127 358836 448546 538255 897091 26 34 49868 83114 166227 249341 332454 415568 498681 831135 27 33 46176 76960 153920 230880 307840 384801 461761 769601 28 32 42732 71219 142439 213658 284877 356096 427316 712193 29 31 39518 65863 131727 197590 263453 329316 395180 658633 30 30 36520 60866 121733 182599 243465 304332 365198 608664 31 29 33723 56204 112409 168613 224818 281022 337227 562044 32 28 31113 51855 103710 155565 207420 259275 311130 518551 33 27 28678 47797 95595 143392 191189 238986 286784 477973 34 26 26407 44012 88023 132035 176046 220058 264069 440115 35 25 24288 40480 80959 121439 161918 202398 242877 404796 36 24 22311 37184 74369 111553 148738 185922 223107 371844 37 23 20466 34110 68220 102331 136441 170551 204661 341102 38 22 18745 31242 62484 93726 124968 156210 187452 312420 39 21 17140 28566 57132 85699 114265 142831 171397 285662 40 20 15642 26070 52139 78209 104279 130349 156418 260697 41 19 14244 23741 47481 71222 94962 118703 142444 237406 42 18 12941 21568 43135 64703 86271 107838 129406 215677 43 17 11724 19540 39081 58621 78162 97702 117242 195404 44 16 10589 17649 35298 52947 70596 88245 105894 176490


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Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.500 45 15 9531 15884 31769 47653 63538 79422 95307 158845 46 14 8543 14238 28476 42715 56953 71191 85429 142382 47 13 7621 12702 25405 38107 50809 63512 76214 127023 48 12 6762 11269 22539 33808 45078 56347 67616 112694 49 11 5960 9933 19865 29798 39730 49663 59595 99325 50 10 5211 8685 17371 26056 34741 43426 52112 86853

Pension Product: 2 Pension per month for lifetime after maturity age - Saving Amount Rs. per month

Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50018 42 529 882 1764 2647 3529 4411 5293 8822 19 41 492 820 1639 2459 3279 4098 4918 8197 20 40 457 761 1523 2284 3045 3807 4568 7613 21 39 424 707 1414 2121 2828 3535 4241 7069 22 38 394 656 1312 1968 2624 3281 3937 6561 23 37 365 609 1218 1826 2435 3044 3653 6088 24 36 339 565 1129 1694 2258 2823 3387 5646 25 35 314 523 1047 1570 2093 2617 3140 5233 26 34 291 485 970 1454 1939 2424 2909 4848 27 33 269 449 898 1347 1796 2245 2694 4489 28 32 249 415 831 1246 1662 2077 2493 4155 29 31 231 384 768 1153 1537 1921 2305 3842 30 30 213 355 710 1065 1420 1775 2130 3551 31 29 197 328 656 984 1311 1639 1967 3279 32 28 181 302 605 907 1210 1512 1815 3025 33 27 167 279 558 836 1115 1394 1673 2788 34 26 154 257 513 770 1027 1512 1815 3025 35 25 142 236 472 708 945 1181 1417 2361 36 24 130 217 434 651 868 1085 1302 2169 37 23 119 199 398 597 796 995 1194 1990 38 22 109 182 365 547 729 911 1094 1823 39 21 100 167 333 500 667 833 1000 1666 40 20 91 152 304 456 608 760 912 1521 41 19 83 138 277 415 554 692 831 1385 42 18 75 126 252 377 503 629 755 1258 43 17 68 114 228 342 456 570 684 1140 44 16 62 103 206 309 412 515 618 1030 45 15 56 93 185 278 371 463 556 927


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Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50046 14 50 83 166 249 332 415 498 831 47 13 44 74 148 222 296 371 445 741 48 12 39 66 131 197 263 329 394 657 49 11 35 58 116 174 232 290 348 579 50 10 30 51 101 152 203 253 304 507

Pension Product : 3 [A] Pension per month for next 5 year after maturity age - Saving Amount Rs. per month

Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50018 42 1797 2995 5989 8984 11979 14973 17968 29947 19 41 1669 2782 5565 8347 11130 13912 16694 27824 20 40 1551 2584 5169 7753 10337 12922 15506 25844 21 39 1440 2400 4799 7199 9598 11998 14397 23996 22 38 1336 2227 4454 6682 8909 11136 13363 22272 23 37 1240 2066 4133 6199 8266 10332 12398 20664 24 36 1150 1916 3833 5749 7665 9582 11498 19163 25 35 1066 1776 3553 5329 7105 8882 10658 17764 26 34 987 1646 3292 4937 6583 8229 9875 16458 27 33 914 1524 3048 4572 6096 7620 9143 15239 28 32 846 1410 2820 4231 5641 7051 8461 14102 29 31 783 1304 2608 3913 5217 6521 7825 13042 30 30 723 1205 2410 3616 4821 6026 7231 12052 31 29 668 1113 2226 3339 4452 5565 6678 11129 32 28 616 1027 2054 3080 4107 5134 6161 10268 33 27 568 946 1893 2839 3786 4732 5679 9465 34 26 523 871 1743 2614 3486 4357 5229 8715 35 25 481 802 1603 2405 3206 4008 4809 8016 36 24 442 736 1473 2209 2945 3682 4418 7363 37 23 405 675 1351 2026 2702 3377 4053 6754 38 22 371 619 1237 1856 2475 3093 3712 6186 39 21 339 566 1131 1697 2263 2828 3394 5657 40 20 310 516 1032 1549 2065 2581 3097 5162 41 19 282 470 940 1410 1880 2351 2821 4701 42 18 256 427 854 1281 1708 2135 2562 4271 43 17 232 387 774 1161 1548 1935 2322 3869 44 16 210 349 699 1048 1398 1747 2097 3495 45 15 189 315 629 944 1258 1573 1887 3145 46 14 169 282 564 846 1128 1410 1692 2819


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Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50047 13 151 252 503 755 1006 1258 1509 2515 48 12 134 223 446 669 893 1116 1339 2232 49 11 118 197 393 590 787 983 1180 1967 50 10 103 172 344 516 688 860 1032 1720

Pension Product : 3 [B] Pension per month for Next 10 Years after maturity age - Saving Amount Rs. per month

Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50018 42 1054 1756 3512 5268 7024 8780 10536 17560 19 41 979 1632 3263 4895 6526 8158 9789 16315 20 40 909 1515 3031 4546 6062 7577 9092 15154 21 39 844 1407 2814 4221 5628 7035 8442 14071 22 38 784 1306 2612 3918 5224 6530 7836 13060 23 37 727 1212 2423 3635 4847 6058 7270 12117 24 36 674 1124 2247 3371 4495 5618 6742 11237 25 35 625 1042 2083 3125 4166 5208 6250 10416 26 34 579 965 1930 2895 3860 4825 5790 9650 27 33 536 894 1787 2681 3574 4468 5361 8936 28 32 496 827 1654 2481 3308 4135 4962 8269 29 31 459 765 1529 2294 3059 3824 4588 7646 30 30 424 707 1413 2120 2827 3534 4240 7067 31 29 392 653 1305 1958 2610 3263 3915 6526 32 28 361 602 1204 1806 2408 3010 3612 6021 33 27 333 555 1110 1665 2220 2775 3330 5550 34 26 307 511 1022 1533 2044 2555 3066 5110 35 25 282 470 940 1410 1880 2350 2820 4700 36 24 259 432 864 1295 1727 2159 2591 4318 37 23 238 396 792 1188 1584 1980 2376 3961 38 22 218 363 726 1088 1451 1814 2177 3628 39 21 199 332 663 995 1327 1658 1990 3317 40 20 182 303 605 908 1211 1513 1816 3027 41 19 165 276 551 827 1103 1378 1654 2757 42 18 150 250 501 751 1002 1252 1503 2504 43 17 136 227 454 681 908 1134 1361 2269 44 16 123 205 410 615 820 1025 1230 2049 45 15 111 184 369 553 738 922 1107 1844 46 14 99 165 331 496 661 827 992 1653 47 13 88 147 295 442 590 737 885 1475


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Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50048 12 79 131 262 393 523 654 785 1309 49 11 69 115 231 346 461 577 692 1153 50 10 61 101 202 303 403 504 605 1009

Pension Product : 3 [C] Pension per month for next 15 year after maturity age - Saving Amount Rs. per month

Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50018 42 816 1359 2719 4078 5437 6797 8156 13594 19 41 758 1263 2526 3789 5052 6315 7578 12630 20 40 704 1173 2346 3519 4692 5866 7039 11731 21 39 654 1089 2178 3268 4357 5446 6535 10892 22 38 607 1011 2022 3033 4044 5055 6066 10110 23 37 563 938 1876 2814 3752 4690 5628 9380 24 36 522 870 1740 2610 3479 4349 5219 8699 25 35 484 806 1613 2419 3225 4032 4838 8063 26 34 448 747 1494 2241 2988 3735 4482 7471 27 33 415 692 1383 2075 2767 3459 4150 6917 28 32 384 640 1280 1920 2561 3201 3841 6401 29 31 355 592 1184 1776 2368 2960 3552 5920 30 30 328 547 1094 1641 2188 2735 3282 5471 31 29 303 505 1010 1516 2021 2526 3031 5052 32 28 280 466 932 1398 1864 2330 2796 4661 33 27 258 430 859 1298 1718 2148 2578 4296 34 26 237 396 791 1187 1582 1978 2373 3956 35 25 218 364 728 1092 1455 1819 2183 3639 36 24 201 334 668 1003 1337 1671 2005 3342 37 23 184 307 613 920 1226 1533 1840 3066 38 22 168 281 562 842 1123 1404 1685 2808 39 21 154 257 514 770 1027 1284 1541 2568 40 20 141 234 469 703 937 1172 1406 2343 41 19 128 213 427 640 854 1067 1280 2134 42 18 116 194 388 582 775 969 1163 1939 43 17 105 176 351 527 703 878 1054 1756 44 16 95 159 317 476 635 793 952 1586 45 15 86 143 286 428 571 714 857 1428 46 14 77 128 256 384 512 640 768 1280 47 13 69 114 228 343 457 571 685 1142 48 12 61 101 203 304 405 507 608 1013


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Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50049 11 54 89 179 268 357 446 536 893 50 10 47 78 156 234 312 390 468 781

Pension Product: 3 [D] Pension for per month for next 20 year after maturity age - Saving Amount Rs. per month

Age Year Rs.30 Rs.50 Rs.100 Rs.150 Rs.200 Rs.250 Rs.300 Rs.50018 42 704 1173 2345 3518 4690 5863 7035 11726 19 41 654 1089 2179 3268 4358 5447 6537 10894 20 40 607 1021 2024 3036 4048 5059 6071 10119 21 39 564 940 1879 2819 3758 4698 5637 9395 22 38 523 872 1744 2616 3488 4360 5232 8721 23 37 485 809 1618 2427 3236 4045 4854 8091 24 36 450 750 1501 2251 3001 3752 4502 7503 25 35 417 696 1391 2087 2782 3478 4173 6955 26 34 387 644 1289 1933 2578 3222 3866 6444 27 33 358 597 1193 1790 2387 2983 3580 5967 28 32 331 552 1104 1657 2209 2761 3313 5522 29 31 306 511 1021 1532 2043 2553 3064 5106 30 30 283 472 944 1416 1888 2360 2831 4719 31 29 261 436 872 1307 1743 2179 2615 4358 32 28 241 402 804 1206 1608 2010 2412 4020 33 27 222 371 741 1112 1482 1853 2223 3706 34 26 205 341 682 1024 1365 1706 2047 3412 35 25 188 314 628 941 1255 1569 1883 3138 36 24 173 288 577 865 1153 1441 1730 2883 37 23 159 264 529 793 1058 1322 1587 2645 38 22 145 242 484 727 969 1211 1453 2422 39 21 133 221 443 664 886 1107 1329 2215 40 20 121 202 404 606 808 1011 1213 2021 41 19 110 184 368 552 736 920 1104 1841 42 18 100 167 334 502 669 836 1003 1672 43 17 91 152 303 455 606 758 909 1515 44 16 82 137 274 410 547 684 821 1368 45 15 74 123 246 369 493 616 739 1232 46 14 66 110 221 331 442 552 662 1104 47 13 59 98 197 295 394 492 591 985 48 12 52 87 175 262 349 437 524 874 49 11 46 77 154 231 308 385 462 770 50 10 40 67 135 202 269 337 404 673


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Reference Ajay Shah, (2006) “Indian Pension Reform: A Sustainable and Scalable Approach” David A. Kelly, Ramkishen S. Rajan, and Gillian H. L. Goh, editors, Managing globalisation: Lessons from China and India, chapter 7. World Scientific

Arunachalam, Ramesh S (2007) et al, “India Country Scan for Financial Services Design/Delivery to Low Income People”, MicroNed Arunachalam, Ramesh S et al (2007), Life at Bottom of Pyramid, Forthcoming

Arunachalam, Ramesh S (2007) et al, Enhancing Financial Services Flow to Small Scale Marine Fisheries Sector, A Study for FAO/UNTRS

Arunachalam, Ramesh S et al “MCG Operational Manual for Microfinance” (1998 and subsequent updates)

Asher, (2007) ”Time to Mainstream Micro-Pension in India”

Asher (2007) “India’s Innovative Pension Plan”

Ashish Aggarwal (2007), “Don’t Compare Mutual Funds with Pension Plans”, Invest India Economic Foundation

“Economic Survey 2006-07”, Government of India

RBI Annual Report, 2005-06

The Hindu, (Sep 03, 2007), “Pension scheme for labourers in Rajasthan”

Mr Anant Natu and Mr Aashish Bansal (Social Initiatives Group, Chennai) during the field visit to Thimmapur mandal of Karimnagar district. The visit was facilitated by Jaimon Jose, FINO

The Hindu Business Line, 5th Oct 2007

Dr Pawan Bakhshi, (October 2007), “Mobiles and Microfinance”, Bharti Airtel Limited, Presentation for Microfinance India Conference

National Commission for Enterprises in the Unorganised Sector (NCEUS) Official Documents (2006-2007)

Hélène K. Poirson, (2007) “Financial Market Implications of India’s Pension Reform” IMF Working Paper

UTI, (2005-06), The Information Company Private Limited “UTI Mutual Fund ties up with India’s largest bank”

Sarmistha Pal (2004), “Do Children Act As Old Age Security in Rural India? Evidence from an Analysis of Elderly Living Arrangements”

Plus several documents from official websites of CGAP, IIMPS, SEWA BANK, FWWB, MicroSave, SHEPHERD and several other stakeholders