MICRO-PENSIONMICRO-PENSION®®
ENABLING THE WORKING POOR TO ACHIEVE A DIGNIFIED RETIREMENT
Invest India Micro Pension ServicesInvest India Micro Pension Serviceswww.micropensions.comwww.micropensions.com
Dr. Kavim V BhatnagarDr. Kavim V BhatnagarOn Deputation from Government of MPOn Deputation from Government of MP
“Micro Pension” is a registered trademark of IIMPS
OverviewOverview• Backdrop and India’s Pension Landscape
• Pension Coverage Gap
• Affordable Access Gap
• Public Policy Gap
• Old Age Income In/Security and the Retirement Options (Low Income Unorganised)
• Micro Pensions and Experience / Role of Civil Societies
• Future Pilots and Road Ahead Thru Solution Exchange
• Invest India Micro Pension Services
BackdropBackdrop• One in 8 of the world's elderly live in India.
• Unable to adequately support this group.
• With a life expectancy of 17 years at 60, this population will double to 175 million by 2030.
• Of the 450 million workers, 321 million are in the working age and have cash incomes.
• 50 million in formal sector employment with pension benefits
• 285 million in informal sector with cash incomes excluded by formal pension arrangements
• 75 million unpaid family members without ability to save
• 40 million workers already aged 60 or above
• Roughly 30 million civil servants covered by a noncontributory, Tax funded inflation and wage indexed pension @ 50% replacement rates
• Annual cost
o 1990-91: $ 1.5bn.
o 2009-10: $ 25bn
o IPD on account of in service employees: $0.6 trillion
• Coverage: 15 million private salaried
• 4.6% of the young paid workers are currently saving for retirement; 60% households are nuclear
India's Pension LandscapeIndia's Pension Landscape
Legislated Legislated Formal PrivateFormal Private
India's Pensions India's Pensions MarketMarket
Civil ServantsCivil Servants Savers InformalSavers Informal
Covered Covered WorkforceWorkforce Excluded WorkersExcluded Workers
Voluntary Voluntary Formal PrivateFormal Private
Lifetime PoorLifetime PoorInformalInformal
10 million10 million 5 million5 million 30 million30 million 151 million151 million 133 million133 million
Unpaid Unpaid WorkersWorkers
129 million129 million
Scope of India's Pension ReformScope of India's Pension Reform
New Pension SystemNew Pension System
Legislated Legislated Formal PrivateFormal Private
India'sIndia's PensionsPensions MarketMarket
Civil ServantsCivil Servants Savers InformalSavers Informal
CoveredCovered WorkforceWorkforce ExcludedExcluded WorkersWorkers
Voluntary Voluntary Formal PrivateFormal Private
Lifetime PoorLifetime PoorInformalInformal
10 million10 million 5 million5 million 30 million30 million 151 million151 million 133 million133 million
Unpaid Unpaid WorkersWorkers
129 million129 million
The Pension Coverage Gap
84% of India's 321mn workers are employed in the informal sector and excluded from formal pension provisions. 144mn earn $2 or less per day.
61mn working poor are interested in saving for their old age*. But with improving longevity, they will need to save enough to support themselves for nearly 2 decades in old age.
However, due to modest, intermittent incomes and poor access to affordable pension and insurance products, barely 4% are preparing for retirement. And less than 1 in 5 are insured.
* Source: Indian Retirement, Incomes and Savings Survey 2004-05 (Ministry of Finance); Invest India Incomes and
Savings Survey 2007 (Dataworks)
The Affordable Access Gap
61mn working poor can afford an average annual retirement saving of Rs.3,300 ($75).
They will need high real returns to convert modest savings into an above poverty annuity. This requires sophisticated and well regulated pension and insurance products.
In aggregate, the working poor can afford an annual retirement saving of Rs.20,000 crore ($5bn). But as individuals, they cannot afford the prevailing sales and distribution costs of Indian finance.
The Public Policy Gap India's tax-funded old age pension (NOAPS) is the
primary policy response to old age poverty. But with 30mn taxpayers and 90mn elderly (200mn by 2025), we cannot afford a meaningful tax-funded population-wide social security.
The only sustainable option is to encourage the working poor to save for their old age.
Conditional Cash Transfers for old age savings by the poor can motivate voluntary coverage and top-up retirement benefits. But for this, the GOI and States require a mechanism for targeted, leakage-proof delivery of means-tested pension co-contributions on a pan-India scale.
Importance of Importance of Old Age Income In/SecurityOld Age Income In/Security
• Risk of Longevity: Low Physical Capacity, Lower Incomes
• Migration of Generation and Dismemberment of Joint Family Structure
• Increased Life Expectancy / Medical Expenses
• Maintenance of Life Standard
• Inflationary Impact on Pensions
• Rate of Replacement (salary vs pension)
Ageing Indian PopulationAgeing Indian Population Source : World Bank (1994)
(1991 – 2016)
(Population @ 49%). (60+ @109%)
Aged 9% in 2016; 13% in 2025
Accumulation and De-accumulation Phases of DC SchemeAccumulation and De-accumulation Phases of DC Scheme
Accumulation PhaseAccumulation Phase De accumulation phaseDe accumulation phase
Working-phaseWorking-phase Withdrawal AgeWithdrawal Age Retirement PeriodRetirement Period
Cumulative Balances = Net contributions (contributions minus withdrawals), plus interest credited on accumulated Cumulative Balances = Net contributions (contributions minus withdrawals), plus interest credited on accumulated balances.balances.Decumulation phaseDecumulation phase: the funds accumulated can be spent rapidly or slowly. Death may occur before the funds : the funds accumulated can be spent rapidly or slowly. Death may occur before the funds are exhausted or reverse is also a possibility. So need to protect against longevity risk. As it is the purchasing are exhausted or reverse is also a possibility. So need to protect against longevity risk. As it is the purchasing power of the funds that is relevant, protection against the inflation risk is also desirable. power of the funds that is relevant, protection against the inflation risk is also desirable. SourceSource: Author : Author
Cum
ulative B
alances
Options of the PoorOptions of the Poor Difficulties with these OptionsDifficulties with these Options
1.1. Work through their livesWork through their lives Not practical
2.2. Depend on children Depend on children Over 62% Nuclear HHs; MigrationChildren likely to be poor as well
3.3. Depend on Government Depend on Government Limited fiscal capacity for a meaningful NOAPS; Elderly grow to 200mn by 2025
4.4. Thrift and self-helpThrift and self-help Low intermittent incomes and savingscapacity; Limited access to regulated products at a low transaction cost
5. Old Age Income InsecurityOld Age Income Insecurity Increased Life Expectancy, Medical Expenses, Similar Life Standard,
Replacement Rates
Retirement Options of the Working Poor
Elements of a Solution for Working Poor
1. Knowledge of financial concepts and role for thrift and self-help in mitigating insurable risks, and
2. Easy access to sophisticated and secure long-term retirement savings and insurance products through credible and trusted channels, and
3. Low transaction costs that do not eat away modest savings and account balances, and
4. Targeted co-contributions by the GOI and States, and
5. High real returns to convert modest savings into an above poverty pension.
Micro Pension – ConceptuallyMicro Pension – Conceptually
Fair, simple, affordable and sustainable mechanism of saving for old age
The scheme is specially designed to provide low income earners in rural / semi urban / urban areas a facility to save for old age income security
Members save Rs.200 (or more in multiples of Rs.100) per month from their income
These savings will be professionally managed by an AMC (SEBI regulated) and will grow over time
The corpus of each member will be converted into a pension for life
Key Features and MechanismKey Features and Mechanism
A mechanism for micro saving for old age,
Accumulation Stage – Fund built up whilst working through to retirement (usually 18 to 58 years of age) – Independent Retirement Accounts
De-accumulation Phase – When it is made available to provide a regular undefined stream of income throughout thereafter
Investment in underlying assets that are likely to provide a higher decent sustainable return over the long term.
Fund created by micro saving for the purpose of micro pension shall be invested by a ‘Asset Management Company’ by using its capital to invest in other companies. (equity and bonds) selected to meet specific criteria and goals. – SEBI regulated
Member's Age at
Time of Joining
No. of Years of
Contribution
Corpus Value at Retirement (Aged 58)
Monthly Pension for 20
Years (Aged 78)
Life Long Monthly Pension With
Corpus Paid Back
18 40 Rs. 12,64,816 Rs. 12,206 Rs. 10,54020 38 Rs. 10,32,068 Rs. 9,960 Rs. 8,60125 33 Rs. 6,17,866 Rs. 5,963 Rs. 5,1493030 2828 Rs. 3,66,119Rs. 3,66,119 Rs. 3,533Rs. 3,533 Rs. 3,051Rs. 3,0513535 2323 Rs. 2,13,110Rs. 2,13,110 Rs. 2,057Rs. 2,057 Rs. 1,776Rs. 1,77640 18 Rs. 1,20,113 Rs. 1,159 Rs. 1,00145 13 Rs. 63,590 Rs. 614 Rs. 53050 8 Rs. 29,236 Rs. 282 Rs. 24455 3 Rs. 8,356 Rs. 81 Rs. 70
Indicative Pension ValuesIndicative Pension Values
Assumptions:ROI at 10%, Monthly Contribution at Rs. 200, Collection Cost Rs. 5 pm
Micro-PensionMicro-Pension®® Model Utilities Model Utilities
For Service Delivery Partners
Ability to mitigate the longevity risk of their customers; Customer Retention
Access to a secure administrative and record-keeping facility
Income from cross-sales and service delivery
For Financial Sector Partners
Low cost, scalable, transparent sales and service delivery channel
Ability to effectively design and price pension and insurance products/ communications based on individual customer profiles
For Low Income Workers
Pension Literacy
Unique account number; Portability
Access to regulated financial services, high returns and low transaction costs
Ability to receive government co-contributions directly into own account
For GOI and States
Transparent and secure mechanism for targeted delivery of pension and insurance co-contributions to the poor
Ability to select beneficiaries on the basis of socio-economic profiles
On-demand MIS, reports
Success Stories (Micro Pension)Success Stories (Micro Pension)
• Contributory
SEWA – Ahmedabad / Basix / JL / MFIs / NGOs etc.
• Co Contributory
Rajasthan Vishwakarma
AP / MP / MOIA
Nyaya Bhoomi /
• Swavlamban NPS
Karnataka / Haryana
State Governments
Future Pilots / ProjectsFuture Pilots / Projects
• Nabard
• Reach Rural Poor through RRBs, cooperatives, BCs and SHGs in 8 districts of 4 States
• Banking Correspondents SBI
• Two States with BCs – ALW and ZMF
• MFIs like Basix and Janalakshmi
• 1.50 Million in next three years
• BRAC (Largest NGO in World), Bangladesh
• Others
• --------
• --------
Invest India Micro Pension Services Launched as a private limited company in 2006 by leading
pension and social sector experts, SEWA Bank and UTI AMC
Enabling roughly 200,000 poor in 70 districts of 9 States to save for old age jointly with credible partners: cooperatives, banks, CBOs, governments, MFIs and unions.
Extensively using IT and telecom to collect, pool and transfer modest individual savings to regulated AMCs and insurers at a tiny transaction cost.
Central record-keeping and administration for targeted delivery of government co-contributions to individual pension and insurance accounts of the working poor.
IIMPS Promoters and Board
Institutional shareholders: SEWA Bank, UTI AMC
Promoters/ Directors
Jayshree Vyas (managing director, SEWA Bank)
Gautam Bhardwaj (promoter, IIEF and IIMS Dataworks)
Renana Jhabvala (chairperson, SEWA Bharat)
Vijay Mahajan (chairman BASIX)
Vijayalakshmi Das (CEO, FWWB)
Imtaiyazur Rahman, (president and CFO, UTI AMC)
Ashish Aggarwal (executive director)
Comparison of Various Pension Products OptionsKey Features / Parameters NPS NPS Lite
LIC Group Insurance Schemes
Unit Linked Pension Plans
by LI Cos.
Micro Pension (UTI RBF)
Regulator PFRDA PFRDA IRDA IRDA SEBISponsors PFRDA PFRDA LIC of India Private LI Cos. UTI Minimum Contributions Per Year (Amount Rs.) 6000 1000 NA 10000 Flexible
Minimum Contributions Per Year (Frequency) 4 NA 12 1 Flexible
Aggregators / POPs / SDP Mobility Yes NO NO NO YesCosts to Member at Rs. 6000 PA Contributions (POP, CRA, PFM)
a. First Year 13.16% 4.25% NA 25% 2%b. Second Year 11.38% 3.67% NA 25% 1%c. Third Year Onwards 11.38% 3.67% NA 3% 1%
Administrative Charges in Case of Irregular / Nil Contributions Rs. 100 p.a. Rs. 100 p.a. NA
Yes (By Deduction of
Units)NIL
Flexibility to Change in Contribution Amount Minimum 6000 Minimum 1000 NA NA AllowedFlexibility for Irregular Contributions NO Partial NO NO Yes
Withdrawal Compulsory Annuity
Compulsory Annuity
Compulsory Annuity
Compulsory Annuity
Systematic Withdrawl
NAV Disclosure Norms Reasonable Reasonable Weekly NAV Weekly NAV Daily NAVGuarantees NIL NIL NiL NIL NIL
Historic Returns NA NA 7 - 8% Varaible 12% since Inception
Corpus Value Becoming Negative YES YES NO YES NOWhether Employer's Co Contributions Permitted YES NO Yes NO Yes
Previous Exposure to Low Income Unorganised Sector Workers NO NO NO NO Since 2006
Are you saving for your old age?
ThanksThanksQ & AQ & A
Dr. Kavim BhatnagarDr. Kavim [email protected] [email protected]
+91 9899887644+91 9899887644