Skip to main content

Universal micropension? Govt of India's doesn't have appetite for social protection, its efforts are patchy

By Moin Qazi*
India is home to one-fifth of the world’s population which includes a third of the world’s poor and one-eighth of the world’s elderly. Most of them spend their whole lives as informal workers and have no retirement security other than the hope that their children will care for them in their old age.
This arrangement worked well as long as the joint family structure was the dominant characteristic of the Indian society.
However, with new social norms eroding the family-based system of support, old-age care for low-income citizens has become a critical challenge. With underdeveloped annuity markets and poor financial literacy, these people face considerable challenges in planning their retirement security. Many elderly citizens are stuck with lives of never-ending work—a fate that may befall millions in coming decades. We can see a worrying preview for those who don’t have the pensions that previous generations of workers enjoyed.
India is experiencing a demographic transition leading to lower fertility, increased life expectancy, and a consequent increase in the proportion of the elderly. Families are shrinking and transforming into nuclear units. Individualistic attitudes and rising aspirations with the accompanying changes in lifestyles are widening the generation gap. According to the India Human Development Survey (IHDS) of the National Council of Applied Economic Research (NCAER), 45 percent of elderly males and 75 percent of elderly females are currently fully dependent on others.
India’s ageing population is expected to grow at more than double the rate of the general population. A study released by the Confederation of Indian Industries (CII) predicts that India’s elderly population is expected to triple from 104 million in 2011 to 300 million in 2050, accounting for 18% of the total population. To put it in perspective, it says, India’s population of 60+ is already equal to the entire population of Mexico and Russia and by 2050 it will be close to the entire population of the United States. The population of seniors in the 80+ age group will itself be equal to the population of Belgium, Greece, or Cuba at 12 million persons.
With a breakdown of the joint family support in old age, rising life expectancy, negligible lifetime savings and pension exclusion, the elderly face the grim prospect of living in poverty after they are too old to work. Women are further disadvantaged due to lower incomes, a relatively higher life expectancy than men, frequent employment interruptions at younger working age and lower access to formal finance.
The main issues that characterise old age security are:
  • Traditional systems of inter-generational care are either breaking down or are no longer perceived as reliable.
  • Assets, especially land and property, are seen as the best way to guarantee old-age security but seem to be out of reach for many poor people.
  • Poor people usually have a low estimate of and little experience with their capacity to use savings as a route to old-age security.
There is an immediate need for a reliable and convenient pension scheme. A pension is a financial tool that is generally defined as a long-term voluntary savings plan by an individual during his working life to yield returns living post-retirement to enable her/him to maintain a decent standard of living.
For the poor and vulnerable, two types of pension could be provided. The first is a public or social pension, where the state raises the revenue and redistributes to the citizens when they reach a stipulated age, in order to guarantee them a dignified life. The second is a personal retirement savings plan. People save a small part of their income individually during their working life that is invested collectively to generate periodical returns. When people retire, their accumulated capital is paid out in monthly amounts. The first one has issues of viability. A possible solution could be a universal social pension with a fairly high retirement age so that expenditure is contained.
The daily wage workers live on a day-to-day basis and as a result, their immediate financial needs take priority over their future needs. They are not able to plan for their long-term future and as a result, they have to work through their entire life. At the national level, they are not covered under any pension suitable to them. Neither their own financial attitude nor any formal financial scheme or state’s safety nets enable them to secure their old age years.
Though informal sector workers may not “retire” in the formal sense like employees in the organised sector, they do need to prepare for the eventual reduction in earning capacity that will occur during old age, especially on account of ill health. Micro-pension, therefore, aims to provide an income stream to coincide with this decline in earning capacity.
Several studies have established that India has a very young and immature pension industry and a population that is not particularly keen to secure its retirement. A mere 7.4 percent of the total Indian population is covered under any form of pension plans, which is an alarming figure in itself. India spends 1.45 percent of its Gross Domestic Product (GDP) on social protection, among the lowest in Asia, far lower than China, Sri Lanka, Thailand, and even Nepal.
The well-known micro-finance expert Stuart Rutherford succinctly sums up the dilemma of the poor when it comes to micro-pension: “Poor people understand the purpose and value of saving. They sense that there may be a savings route to old-age security, and grab opportunities when they come their way. But they are beset by many difficulties, both in their own circumstances and in the financial services available to them, so that in practice success remains the exception rather than the rule.”
The pension system of the country has to evolve quickly, or else the economy will be left in a dire state. There are numerous government-supported micro-pension schemes but also several mounting challenges. The reluctance of people towards investing any part of their income over a large period of time, an absence of regular income for clients, poor infrastructure/connectivity and remotely spread clientele. The Indian government doesn’t seem to have much appetite for social protection programmes and its efforts in evolving a relevant pension model have been patchy.
Micro-pension has low-ticket, high-volume transactions which make it unviable. With a small corpus, high transaction costs and wafer-thin margins (or even losses), the viability of micro-pension is a big issue. Another challenge is getting the agents to sell the scheme, as commissions are small. Premature withdrawal and closure are also a serious problem.
For micro-pensions to succeed, a delicate balance between economic viability, generation of adequate returns and customised features for the participants is required. As the income flow of low-income communities is uncertain or volatile, they should be offered a degree of financial flexibility providing for low or no minimum contribution requirements in order to encourage membership.
However, contributions that are set too low or which are paid very unevenly may not provide sufficient income security. Experience with savings-based pension plans indicates that low-income groups prefer lower-value and frequent deposits rather than infrequent larger-value deposits. As there are competing demands on their resources, it is difficult for them to accumulate large amounts. In order to facilitate the making of frequent deposits, convenient door-to-door deposit collection has to be organised. Mobile phones have transformed the landscape in a revolutionary way and this may not be such a tall order.
An ideal micro-pension plan needs to address governance, design, administrative and efficiency issues to succeed and requires a multi-model implementation in addition to a separate set of regulations on account of the complex nature of the Indian employment profile.
---
Contact: moinqazi123@gmail.com

Comments

Uma Sheth said…
The government has foisted many plans on the people but there is no follow-up so that one does not know what the results are.

TRENDING

Whistle-blowing IPS officer Sanjiv Bhatt's wife suspects foul play after truck hits her car

By Nachiketa Desai*
Paranoia has seized Shweta Bhatt, wife of suspended Indian Police Service (IPS) officer Sanjiv Bhatt, after the car she was driving was rammed in broad day light. According to Shweta Bhatt, it was beacon light-flashing truck without registration number plate. The incident took place on January 7, just a day ahead of the Gujarat High Court was scheduled to take up the bail application of Sanjiv Bhatt, arrested last year for "involvement" in a 23-year-old case.

Call to support IIM-Bangalore professor, censured for seeking action against Uniliver

Counterview Desk
Sections of the Indian Institute of Managements (IIMs) across India have strongly reacted to the decision to censure Dr Deepak Malghan, a faulty at IIM-Bangalore. Prabhir Vishnu Poruthiyil, who is faculty at IIM-Tiruchirapalli, has sought wider solidarity with Dr Malghan, saying, "The administration has censured Deepak for merely suggesting a meaningful action against Hindustan Unilever for their abysmal environmental record" by “disinviting” it for campus placement.

Morari Bapu, who has installed new statues of Ram, Laxman, Hanuman without weapons

By Sandeep Pandey*
A saint is one who can give some inner peace by his/her voice. This will happen only when s(he) will talk about love and harmony. Morari Bapu is one saint who has been conveying the message of love, peace, harmony, fraternity, etc. Today when a number of saffron clad figures with aggressive posture, spewing venom, fanning hatred to polarise voters are at the forefront of politics of Hindutva it is a relief to see Morari Bapu in a different mould.

99% MGNREGA funds "exhausted", Govt of India makes no additional sanctions: Study

Counterview Desk
A letter, addressed to Prime Minister Narendra Modi, and prepared by senior activists led by Aruna Roy on behalf of the Peoples’ Action for Employment Guarantee (PAEG), and signed, among others, by 80 members of Parliament, has regretted that, despite repeated public statements by his government promising employment and job creation that will boost the country’s growth, the country’s only employment guarantee programme, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), “is being systematically undermined.”

Nuclear reactors sought from French giant "not safe": Letter to Modi on Jaitapur project

Counterview Desk
Amidst reports that the French nuclear giant EDF has submitted a “techno-commercial offer” for the world’s largest nuclear power park proposed in Maharashtra’s Jaitapur nuclear power park in Jaitapur on the Maharashtra coast, Dr EAS Sarma, India’s former Union Secretary in the Minister of Power, and an eminent voice in the civil society, has written an open letter to Prime Minister Narendra Modi, who also heads Department of Atomic Energy (DAE),  protesting the move.

World Bank clarifies: Its 26th rank to India not for universal access to power but for ease of doing business

By Our Representative
In a major embarrassment to the Government of India, the World Bank has reportedly clarified that it has not ranked India 26th out of 130 countries for providing power to its population. The top international banker’s clarification comes following Union Power Minister Piyush Goyal’s claim that India has “improved to 26 position from 99” in access to electricity in just one year.

Kaiga NPP expansion: Karnataka to get just 400 MW, but lose thick forest, fresh water

Counterview Desk
In an open letter to the chairman and members of the Atomic energy Commission (AEC) on the issue of Kaiga nuclear power plant (NPP) expansion plan in Karnataka, Shankar Sharma, well-known power policy analyst, has argued that that in case of expansion, the site will face “exponential increase in radiation emission risks”, underlining, “Nuclear safety experts identify such a scenario as enhanced risk for NPPs with multiple reactors and shared technical facilities."
Sharma says the questions that also be asked whether Karnataka should lose more than 54 hectares of thick forests and about 152,304 cubic meters of fresh water per day from Kali river for a meager benefit of 400 MW from the Kaiga NPP, for which “there are many benign alternative options available for the state at much lower overall costs to the state.”
Text of the letter: This has reference to the public hearing under the Environmental Impact Assessment (EIA) Rule 2006 of Ministry of Environment, Fore…

Uttarakhand High Court: Biodiversity boards can impose fees on Ramdev's Divya Pharmacy

By Mridhu Tandon
In a significant decision, the Uttarakhand High Court on December 21, 2018 has dismissed the writ petition filed by Divya Pharmacy founded by Baba Ramdev and Acharya Balakrishnan, challenging the demand of the Uttarakhand Biodiversity Board (UBB) imposing fees under the provisions of the Fair and Equitable Benefit Sharing (FEBS).

Modi becoming Prime Minister now appears to be an "accident" to the people of India

By Sandeep Pandey*
Anupam Kher's film 'Accidental Prime Minister' has targeted Dr Manmohan Singh who served for two terms and may be again acceptable for the job if his party regains power. But his tormentor Narendra Modi seems to be out of breath even before his first term is over. Disillusionment with him is so widespread and deep that people of India may not bear with him for another term. As the general elections approach again the difference between the two needs to be examined.

Story of a foot soldier of Gujarat riots coming from a vulnerable community, Chharas

By Rajiv Shah
He is one of the more prominent "foot soldiers" of the 2002 Gujarat riots. Suresh Jadeja, alias Langdo, alias Richard, is indeed a well-known name in the Naroda Patiya massacre case, in which 97 persons were killed on February 28, 2002, the first day of the riots that shook the nation. Ordinarily, such a person should have been subjected to sociological scrutiny. What have here is a keen journalistic account, with clear political-ideological overtone.