Context

Barely 10% of India’s 450 million working age population is covered by formal retirement benefit programs. The present 100 million elderly in India will double within the next two decades. With less than 40 million taxpayers, India cannot afford the fiscal cost of a nation-wide social assistance program for its current or future elderly. However, without comprehensive pension coverage, the nation will face decades of severe social and fiscal stress.

As a result, and also due to a breakdown of the traditional joint family support systems because of labor migration, the presently excluded workforce increasingly will need to self-provide for their retirement. But with rapidly improving life expectancy, such individuals will need to accumulate enough savings during their working lives to support themselves for nearly 20 years when they are too old to work.

Meaningful financial and social security inclusion in India is however constrained by suboptimal access by the poor to regulated pension, micro-saving and insurance products, and equally limited access to banking and other secure micro-payment mechanisms. These challenges are compounded by fragile labour market attachments, low intermittent incomes and savings capacity, and low literacy and financial literacy of the financial excluded population in most States.

Current public policy efforts in India are therefore aimed at establishing sustainable and scalable mechanisms to encourage thrift and self-help by a predominantly young workforce in order to avert an old age poverty crisis. To encourage its excluded workforce to voluntarily set aside micro-savings for their old age, the government of India and some state governments have launched an innovative co-contributions based retirement savings program through the PFRDA regulated National Pension System (NPS). An aggregate co-contribution budget of ~Rs.2500 crore or ~500mn has already been provided for purpose up to 2017.

A key challenge before India is to now rapidly achieve mass-scale voluntary enrollments among millions of young informal sector workers with modest, intermittent incomes spread across 3.3 million sq. kms, and to motivate and facilitate disciplined micro-savings by individual subscribers over a multiple decade horizon.

On the flip side, the aggregate latent demand for private pensions in India is estimated at $300 billion within the next decade (as per the pan-India IIIS Survey 2007). This presents a huge new market opportunity for pension fund managers, annuity providers and specialised distributors of retirement products such as IIMPS who are capable of implementing innovative, market-led solutions to decisively address this large latent demand. This presents an equally large opportunity for prepaid and mobile-based micro-payment providers capable of implementing secure, convenient, affordable and innovative solutions for periodic collection and cashless transfer of micro-savings to regulated product providers.

IIMPS is focused exclusively on this market. And on putting together both available and missing necessary ingredients for building a mass-market for contributory pension, insurance and micro-saving products among India’s excluded low income workforce.

 

 

Changing Lives
field updates

Low income individuals in remote tribal locations at Tamil Nadu are now being enrolled for "micro-pension" in partnership with Centre for Tribal Research and Development (CTRD).

IIMPS and eKutir will jointly assist low income farmers in Odisha to accumulate micro-savings through the Micro-Pension model.