Pension for the last man

Despite high returns, the NPS Lite scheme is moving at a snail's pace

Mrignendra is an agent of FINO, a last-mile banking firm, and works in Satna, Madhya Pradesh. He has been pushing a new product among villagers in recent months, viz New Pension Scheme (NPS), mainly the diluted version of it meant for the poorest.

Mrignendra says he has just sold 30 policies so far, with people giving him Rs 20-30 daily till there is a premium of Rs 1,000 for the whole month, indicating the enthusiasm of the poorest to save for old age. The minimum premium for a year is Rs 1,000 and maximum is Rs 12,000. The assured pension is Rs 1,000.

"My view is that it may not be difficult to sell the policy as it is government-backed," says Mrignendra. "When they hear that the government would add Rs 1,000 per year to their savings, they are encouraged to save for pension. But when they come to know they cannot withdraw until 60 years of age, some do not go for it," he adds. He knows it would be a slow race, but the people who are already in it are milkmen, farmers and kirana shopowners. "Depending on their earnings, they deposit about Rs 20-30 a day with me. By the end of the month, it reaches a corpus of Rs 1,000 to ensure that the customer gets the benefit from the government, says Mrignendra.

This is how the country's first-ever universal pension platform is getting its first hesitant clients from rural areas. The government's pension scheme, NPS, could cross the rural, urban and class divide to emerge as a universal scheme through its subsidiary NPS Lite or Swavalamban. So far it has got 1,923,851 subscribers and created a corpus of Rs 604 crore.

NPS, which was confined to central government workers when it started in 2004, was extended to the private sector in May 2009. It has accumulated a corpus of Rs 33,000 crore contributed by five million subscribers. It opened up last year for the unorganised sector under the category of NPS Lite, with a premium limit of Rs 12,000, with an annual government contribution of Rs 1,000. The funds are invested in government securities and equities (to the extent of 15 per cent ). The NPS has tied up with many last-mile banking agencies like FINO, Sahaj and 24 public sector banks to use their business correspondents to enrol people in rural areas, while several private agencies are pushing the scheme in urban areas.

Mujahid Ahsan, a FINO spokesperson, says their business correspondents have enrolled 7,000 people so far in NPS. Sahaj has been pushing NPS in 25,000 information technology-backed centres in Assam, Bihar, West Bengal, Odisha, Uttar Pradesh and Tamil Nadu. "We had more than 8,000 Permanent Retirement Account Number (PRAN) generated till FY13. People at large are waking up to the need of an assured income at old age," says Sahaj CEO Sanjay Kumar Panigrahi.

The returns earned by NPS have been impressive, but this is not getting reflected in its expansion. NPS delivered double-digit returns for FY13 and has evidenced itself as not just being the cheapest retirement product, but also the highest return-generating scheme.

Various NPS schemes earned average annual returns ranging between 8.3 per cent (private equity) and 14.2 per cent (private corporate debt) in the financial year. Swavlamban, which is meant for the poorest and allows investment between Rs 1,000 to 12,000 a year, has been posting returns of 13.4 per cent.

Banking correspondents from various agencies blame poor marketing by the Pension Fund Regulatory and Development Authority for the low awareness about Lite. The other government-run pension scheme, the Employees Pension Scheme, is confined currently to subscribers of the Employees' Provident Fund (EPF) and these are mostly workers in the organised sector.

It does include contract workers and some of the unorganised sector, but is hardly an effective instrument. The reason is that workers keep shifting jobs and the fund fails to move with them, resulting in a huge chunk of non-functional accounts in the EPF. These are deducted from the earnings of the poorest, but will never reach them as pension.

Some reforms are underway to rectify this anomaly, even as the government is working towards assuring a minimum pension of Rs 1,000 under this scheme. A third form of pension that exists for the poor is provided without contributions from subscribers under welfare schemes run by the rural development ministry. The government is talking to the civil society on increasing the amount of pension to a minimum of Rs 2,000. While these efforts are on, there is barely any noise on a scheme.