What We Do
A majority of India's 150mn working poor who earn US$2 or less per day are highly vulnerable to old age poverty as they are excluded from formal pension provisions and are unable to easily access regulated pension products at an affordable transaction cost. On average, these workers will need to accumulate enough savings during their working life to support themselves for nearly two decades when they are too old to work. However, their modest intermittent incomes, coupled with the absence of an affordable and easily accessible long-term savings mechanism has put retirement planning out of reach of most workers. As a result, barely 4% of this group are presently saving for retirement and less than one in five have some form of insurance.
Evidence from the "Indian Retirement, Incomes and Savings Survey" produced through an ADB funded TA for the Indian Ministry of Finance in 2004-05, and the subsequent "Invest India Incomes and Savings Survey 2007" suggests that around 60 million urban and rural working poor in India are willing and capable of saving for their old age. Their aggregate annual retirement saving capacity exceeds US$4Bn. However, to achieve an above poverty pension, the poor need supplementary savings from the government along with a secure environment under which their modest savings are channeled to customised long-term savings products and earn high real returns at a low transactions cost.
Against this backdrop, a group of national pension and development sector experts, with equity participation by UTI AMC and SEWA Bank established IIMPS in 2006. IIMPS is a specialised agency that uses a proprietary “micro-pension” model to enable and encourage the working poor in developing countries to achieve a dignified retirement through thrift and self-help.
The micro-pension initiative was launched by India's union finance minister in April 2006 at SEWA Ahmedabad. IIMPS is today working with a number of highly reputed partners (MFIs, CBOs, cooperatives, worker unions, government departments and NGOs) in delivering regulated pension products to the poor. The IIMPS network of partners serves as a port for collecting modest pension contributions and insurance premium from low income individual workers and pooling and transferring them at an affordable transaction cost to regulated asset management and insurance firms contracted by IIMPS.
IIMPS operations span 70 districts across nine Indian States and already enable around 150,000 working poor to save for their old age. A key focus with the IIMPS approach is to implement secure and scalable mechanisms that harness credible existing institutional capacity for outreach and service delivery. In this process, IIMPS undertakes a range of development, promotion and public education efforts to promote mass-scale voluntary coverage of pension and insurance arrangements by the working poor, especially by low income women workers. IIMPS has also developed a proprietary micro-pension administration and recordkeeping software platform (sCube). sCube issues and administers individual pension and insurance accounts and has been developed through a grant by KfW.
Government cash-transfers linked to retirement savings can provide the working poor with a powerful financial incentive to undertake disciplined voluntary retirement savings over multiple decades, and also supplement the modest savings of the poor so that when they reach their retirement years, the value of their savings is sufficient to produce an above poverty annuity. In this context, IIMPS has been also actively encouraging both State Governments and the Government of India to establish co-contributions based pension schemes for the poor.
The Government of Rajasthan launched India's first such co-contributory pension scheme for low income informal sector workers in 2008. The State appointed IIMPS as its consultant and turnkey implementation partner for this Scheme that today covers over 50,000 poor across all 32 districts of Rajasthan. More recently, IIMPS has also advised the State Governments of Madhya Pradesh, Haryana, Andhra Pradesh and Karnataka in designing similar co-contributory pension schemes for their working poor. IIMPS is working with the Ministry of Overseas Indian Affairs in designing a co-contributions based pension and insurance scheme for the 5mn migrant Indian workers on short-term work permits in 16 ECR countries.
India's pension regulator (PFRDA) has decided to adopt the IIMPS micro-pension approach for achieving mass-scale coverage of the national pension scheme (NPS). This scheme was launched by PFRDA in May 2009 and has achieved a voluntary coverage of only 4,000 informal sector workers. In order to encourage a larger number of low income workers to join the NPS, the Government of India has announced an annual co-contribution of Rs 1,000 for low income workers who voluntarily join the NPS in 2010.
Income insecurity in old age is rapidly emerging as one of the most important causes of poverty in developing countries and especially in South Asia. In this context, IIMPS proposes to further strengthen the impact of its work in both developing pension policy and implementing micro-pension solutions by offering its micro-pension model to enable countries in the region to implement a sustainable and scalable solution to mitigating the longevity risk of their poor.