INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

POOR CAN RETIRE TO PENSION

  IT'S a small beginning. But if things move as planned, India's 360 million workers, specially the poorer among them, will be able to retire with some money and dignity soon.

The journey began early this month when the finance minister P Chidambaram unveiled a novel pension scheme from UTI targeting the extremely poor among the Indian workers. For a minimum contribution of Rs 50, women working with SEWA are being offered a pension plan under which they can contribute throughout their life to a pension account and start drawing a pension when they retire.

This is the first time that poorly-paid unorganised sector workers in India, with virtually no statutory benefits, will have an option to save in a pension plan. So far only 26 million government employees have access to pension - besides the 20 million workers (who come under the EPFO scheme) who get some kind of pension.

"The response has been overwhelming," says U K Sinha, chairman and managing director, UTI AMC. By April end, around 50,000 women working with SEWA are likely to join. SADHAN, a microfinance institution covering 7 million workers spread across the country is also planning to join in. A national farmer cooperative with over a million farmers under its wings wants to join right away. UTI is targeting one million members of 30 such institutions in the first year.

But perhaps the bigger news is that Sinha has been getting a large number of enquiries from tax payers who have PF accounts but are still interested in this pension scheme. The just-launched UTI pension scheme primarily targets the unorganised sector workers at the low of end of the spectrum who are non-tax payers. "A lot of people who are tax payers with surplus money want to invest in the pension scheme. The scheme will get the benefits under 80 ccc," he said. As of now tax payers can't join this scheme. While many banks and financial services company have launched pension products - but because of the high cost of distribution and low margins leading to doubts on their commercial viability- most of them have focused on the relatively richer section of the Indian population. This is the first time that a financial services company has dared to enter the segment. Sinha's previous stint as joint secretary (capital markets and pension) may have had a role to play.
UTI's pension product has been launched even when the government is still deliberating on the new pension policy which envisages bringing in a New Pension System which will be open to all workers. The beginning for which was made in 2004 when all new central and a few state government employees were made to join the new defined contribution pension system in which the pension at the time of retirement was decided by the contribution one made to their pension kitty, and not the last drawn salary, which was the system earlier.