Sunday, November 27, 2011

Neemrana Fort-Palace "non-hotel" hotel - a perfect weekend getaway

I used to be very intrigued every time I pass through “Neemrana” shop in Khan Market as to the word that Neemrana is and had been waiting for an opportunity to explore the place. I finally could get out of Delhi over the weekend and spent a day in the Neemrana Fort-Palace. Of course, the rooms can be booked online or in the Neemrana shop. The room rents in Neemrana Fort-palace hotel range from Rs 3000- Rs 20000 per night. There’s a discount of 20% during off-season (summers).
The journey to Neemrana
Neemrana is about 120 kms from Delhi, located on the main NH8 highway. Depending upon the traffic and the time of the day, it takes anytime between 2-4 hours to reach here. There are three toll tax points enroute – one at Gurgaon, the next one at Manesar and the third one at Shahjahanpur (at 116 kms point from Delhi ) as one enters Rajasthan. One passes through Gurgaon & Rewari districts of Haryana and Alwar District in Rajasthan. The main towns en-route are i) Gurgaon, ii) Manesar and iii) Dharuhera (in Rewari District of Haryana). The expansion work on NH8 is underway to make it 6 lanes each and this often creates huge bottlenecks on the highway. What amazes me is the fact that the expansion work on this highway seems to be never ending work. I remember driving to Jaipur last time in 1997 and the road was equally chaotic due to the ongoing work to make it four lane. I really wish the work gets completed sometime! Because of the ongoing work in stretches and towns such as Manesar & dharuhera en-route, the journey may get terribly slow in bits and pieces as happened with me. I encountered a traffic jam at i) gurgaon toll point, ii) a 15 kms stretch while passing through Manesar and again iii) while passing through Dharuhera. It gets dusty, horney(remember, we Indians love honking!) and never ending. Thankfully, i am yet to complete “the girl with the dragon tattoo” and it came in very handy in these stretches. I thought of this treacherous bit something worth undergoing to seek a peaceful time in Neemrana, to be with nature and away from the crowds and traffic and this is when i got concerned as I kept noticing huge bill boards promising ‘flats at affordable rates’ and ‘offer to invest in new shopping malls in Neemrana’ throughout the journey. The last thing i wanted to see here was another unplanned, haphazard growth in the name of urbanisation. After entering Rajasthan on this NH8 at Shahjahanpur, the first town is Neemrana, which falls in Alwar District. On my left was a huge Industrial belt of RIICO followed by NIIT Neemrana.
Neemrana Fort-palace
Neemrana Fort Palace is just within first 3 kms on NH8, to the right of NH8 and one has to be careful to look for a signboard on the main highway (a small one though). I took the right turn and passed through “Liberty footwear” factory followed by Neemrana village. One will have to take a right turn from a point where “sub-tahsil office” is on the left and the road leads up to the Fort. Vehicles cants go inside the fort and one has to walk up about 250 meters to reach the reception. It’s a sudden change from all pollution, congestion & traffic I went through the journey and suddenly it was all quiet and quaint and I felt refreshed. It was literally being in nature. The fort-palace is a garden palace, located in an area of 6 acres and built over 12 layers tiered into the hills. There are two parts in the Fort hotel- the original portion and the new block where the architecture has been kept in sync with the original design of the palace fort. The original terrain and vegetation has been left untouched and one sees ‘kikar’ (acacia karoo) trees all around. There are two swimming pools in the Hotel and are well maintained. For an hour or so as one enters the hotel, the place looks like a complete ‘Bhul-bhulaiya’ and one would surely lose his/her way while going up to the room.
I checked into the fort –Resort and realised that there are no numbers to the room and all have names. I was in “Donna” room and had to walk up about at least 50 meters to come up to my room. What amazed me as I entered the room was that there wasn’t

a Television or internet! And it was such a big relief. I went around and saw other rooms too. Rooms in the original Fort are at various levels and the room architecture is different in almost all the rooms. Few have stairs as one open the room and washroom are at different level. Each room has a small balcony. I also noticed that there is no intercom and one has to dial the number to access the reception. It’s not only being in nature and a very conscious effort has been made to minimize the interaction with the outside world and that’s the beauty of Neemrama. It is truly peaceful and one feels refreshed and recharged.
In the evening, there was a cultural program and traditional Rajasthani folk dances were performed. Maybe because it was a weekend but it added that extra zing. The dinner timings are from 8-10 pm and which again is a refreshing discipline.
I happened to meet Francis Wacziarg, co-chairman of Neemrana Fort-Palace this morning and complimented him for a very subdued presence of outside interference and almost a perfect blend with the nature. He informed me that there are about 25 Neemrana “non-hotels” and that, in addition to the heritage sites in the North, Neemrana is planning to arrange similar wonders now in South India including Hyderabad. He also explained how they have worked concertedly towards creating a new niche whereby the experiencing of history in once abandoned architectural treasures has now been added to the Indian tourism repertoire and thereby turning India’s neglected architectural ‘waste’ into World heritage assets.
I went to see the Neemrana Baoli in the morning. It’s about a kilometre from the Fort-Palace Hotel, to its right and one has to walk through the village. Built in 1760s it is a 9 storey underground structure of majestic scale and is in a state of complete neglect. It was built by the Rajas of Neemrana for famine relief. Traditionally baolis in Rajasthan have acted as sarai for the travellers. I have seen Baolis in Gujarat (adalaj Vav, Rani ki vav & agrasen vav) which have been restored and are heritage site for the tourists. The one at Neemrana is certainly very impressive in its architecture and I wish its restored and beautified at the earliest. I did go down all the way and it was some exercise. The visit to neemrana is incomplete without visiting the bauli.
I came back in the evening today totally refreshed. I heard a gossip how, Neemrana- a vast and splendid ruin was acquired initially in 1977 for a ridiculously paltry sum of Rs 2.2 millions (just hearsay and am not sure about its authenticity) but then I marvel how it was turned into a world class heritage hotel with painstaking efforts and ensuring the ambience is not polluted in the name of modernity. The “Neemranification” is a term now symbolises a new blend of restoration, rebuilding and revitalization of ruined architectural wonders. The term has become almost synonymous with a foremost example of architectural restoration-for-reuse.
No wonder, Queen Elizabeth’s niece Princess Sarah Armstrong Jones on her honeymoon at Neemrana Fort-Palace wrote “simplicity and style are so difficult to achieve together...Neemrana is one of the most beautiful places we have stayed anywhere in the world”. Another comment in the visitor’s book says “The Neemrana hotel is India’s best-kept secret”.

Neemrana is a phographer's delight and even an amateur novice like me couldnt resist. More photographs can be seen here.
It was my first visit to Neemrana Fort-Palace and certainly not the last....

Monday, November 14, 2011

A brief history of Pension system in India -Part I

According to a working paper published by Asian Development Bank (Ageing Asia’s Looming Pension Crisis): “A young continent reaping the demographic dividend of a large youthful workforce is giving way to a greying continent where the ratio of retirees to workers is on the rise. In contrast to industrialized countries, most Asian countries do not yet have mature, well-functioning pension systems”. This makes the task of pension reforms in India rather compelling in nature and a dire social necessity that cannot be forestalled for far too long. The Indian economy is currently basking in the glow of the so-called “demographic dividend”, a fortuitous consequence of what was earlier considered a millstone for the economy – the country’s burgeoning population. But, this dividend can also turn into what has been termed as a “demographic echo”. Over time, this huge bulge in the working force – which is being considered as an economic windfall -- is expected to retire. At the same time, the lower dependency ratio will see fewer younger people joining the workforce, resulting in a graying of the economy. A larger number of older and retired people, in the absence of a dependable pension system, will pose a danger to the old age income security in the country and put enormous pressure on the government of the day to re-route expenditure earmarked for public goods and services towards providing for health and pension spending. This causes a drain on the state of the fiscal and, subsequently, on the economy.
The proportion of those aged 60 and above is expected to climb from 4.6% in 2000 to 9% in 2030. In absolute numbers, the number of people above the age of 60 will increase from 87.5 million in 2005 to 100.8 million in 2010 and this is expected to jump to 200 million by 2030. By 2050, it is expected to be over 320 million (Source -- World Population Ageing: 1950-2050, United Nations). What makes this data-point chilling is the fact that improved economic development is bound to lead to a higher life span. The inability to implement a properly functioning pension system now is likely to affect a larger number of people in the future
What further complicates matters is that only about 12% of the working population participates – and is eligible to participate -- in the mandatory, formal programmes designed for providing income security during the non-earning years. These employees are largely part of the formal sector (private sector and the government). The rest is either part of the informal sector (which goes unreported in the broader economic scheme) or does not enjoy adequate income streams that can be accommodated in the existing pension schemes.
Any pension system in the world can be said to broadly conform to any one, or a combination, of three basic pillars.
Pillar-I: This pillar essentially comprises all the state-funded pension plans, which in theory should ideally cater to every citizen in the country. This is also the pillar under which the government launches some of its poverty alleviation programmes aimed specifically at the aged. Under this pillar, the system is publicly managed, the liabilities are not actuarially funded and the scheme works on what is termed as Pay-As-You-Go. This means that current revenues are used to meet current expenditures. But, in fiscal terms, the consequences need a slightly more detailed look – the current generation’s tax payments are used to pay the pension liabilities of an earlier generation. The World Bank’s now famous report on pensions, called Averting The Old Age Crisis (1994), defines Pillar-I thus: “…a publicly managed system with mandatory participation and the limited goal of reducing poverty among the old…”. In India, the defined benefit pension system in vogue for the civil services at both the Centre and the state level – including in the railways, defence and telecommunication services – fall under Pillar-I, where the system is essentially non-contributory in nature and any particular year’s pension liabilities are met from the government’s annual revenue expenditure account for that year.
Pillar-II: This typically comprises a mandatory savings programme at the employment level which is either privately or publicly managed. In simple terms, it is a forced savings pillar that provides benefits only to contributors, and, in general, incorporates a direct linkage between the volume of contribution and the extent of benefits received. In India, the Employees Provident Fund, which is India’s largest defined contribution and publicly managed plan, is an example of this. In addition, there is the Employees Pension Scheme, a publicly managed scheme carved out of the EPF scheme with the objective of paying a monthly pension to workers after their retirement.
Pillar-III: This pillar includes all kinds of voluntary savings, available to everyone including those looking to supplement their Pillars I & II pension provisions. In India, the Public Provident Fund scheme fits the definition.
The Journey from Defined Benefit to Defined Contribution
The government began to take note of the looming pension crises necessitated by an existing anachronism in the civil service pension scheme – a defined benefit scheme inherited from the British administration, which was showing all signs of being fiscally unsustainable and, secondly, by an important event in the mid-nineties in which a part of the age-old defined contribution scheme, the Employees Provident Fund Scheme, was converted into a defined benefit scheme in the form of the Employees’ Pension Scheme, 1995. This marked a curious move by the Indian government, particularly at a time when the rest of the world was moving away from DB to DC. However, the introduction of NPS a few years later might be seen as an attempt to make course corrections.
The Ministry of Social Justice and Empowerment (earlier called the Ministry of Welfare), in 1998, commissioned the first comprehensive study of India’s pension sector under the chairmanship of former UTI Chairman Dr S A Dave, under the name of Oasis Project – Old Age Social and Income Security Project. While the original remit of the Oasis Committee was to provide a pension solution for the 90% of the informal sector workers, the committee ended up providing a prescription for overall pension reforms. As part of its overall recommendations, the Oasis committee (which submitted its final report in January 2000) suggested a completely new and radically different architecture through portable individual retirement accounts, across-the-counter service delivery platforms, centralized record keeping, competing pension fund managers, extensive use of information technology, freedom to choose investment menus, among other things. While observing that there was a separate working group looking into the aspect of government pensions, the Oasis committee expressed its view on the issue rather succinctly: “…measures should be taken so that Government Pension liabilities become fully funded out of contributions made by government employees. This goal can be achieved over a period of the next ten years.”
The turning point came on February 28, 2001, when former Finance Minister, Mr. Yashwant Sinha, announced this in his Budget speech for 2001-2002: “The Central Government pension liability has reached unsustainable proportions: as a percentage of GDP, it has risen from about 0.5 per cent in 1993-94 to 1 per cent in 2000-2001. As such it is envisaged that those who enter central government services after October 1, 2001 would receive pension through a new pension programme based on defined contributions. In order to review the existing pension system and to provide a roadmap for the next steps to be taken by the Government, I propose to constitute a High Level Expert Group, which would give its recommendations within 3 months.”The Finance Minister Jaswant Singh announced in his Budget speech of February 2003: “My predecessor in office had, in 2001, announced a road map for a restructured pension scheme for new Central Government employees, and a scheme for the general public. This scheme is now ready. It will apply only to new entrants to Government service, except to the armed forces, and upon finalisation, offer a basket of pension choices. It will also be available, on a voluntary basis, to all employers for their employees, as well as to the self-employed. This new pension system, when introduced, will be based on defined contribution, shared equally in the case of Government employees between the Government and the employees. There will, of course, be no contribution from the Government in respect of individuals who are not Government employees. The new pension scheme will be portable, allowing transfer of the benefits in case of change of employment, and will go into ‘individual pension accounts’ with Pension Funds. The Ministry of Finance will oversee and supervise the Pension Funds through a new and independent Pension Fund Regulatory and Development Authority.”Thus began the transition from the age-old defined benefit scheme to the fiscally prudent defined contribution scheme as part of the National Pension System. In December 2003, the Interim Pension Fund Regulatory and Development Authority was created as the watchdog and promoter for the pension sector. Simultaneously, all government employees joining service on or after January 1, 2004, were compulsorily brought under the coverage of the New Pension System (NPS)—a defined contribution scheme replacing the defined benefit scheme available to the Government employees until then. Most of the states have also migrated to the DC system under NPS, except three states. Only one category of government employees has been exempted from mandatorily moving to NPS: personnel from Armed Services. NPS was introduced for all citizens from May 2009.

Each government employee contributes 10% of his salary (basic+DA+DP) to the pension account, which is then matched by a government contribution of an equal amount. However, non-government employees do not get the benefit of a matching government contribution. In both the cases, investors are free to contribute higher than what has been mandated. All these contributions are accrued in a pension account called Tier-I from which funds cannot be withdrawn. Once the account-holder reaches the proper exit age (60 years, relaxed to 50 years for Swavalamban beneficiaries in Budget 2011-12, see below), he/she can withdraw only up to 60% from the accrued savings corpus. The balance 40% in the savings corpus has to be used to compulsorily purchase annuities sold by any life insurance company. This annuity then provides for regular pension streams over the non-working life of the investor. In addition, there is a tax issue at work here as well. The contributions to this account and the savings accrued are exempt from income tax, as per Section 80CCD. However, when the investor withdraws the amount on maturity, it is taxable. The Direct Tax Code is proposing to convert retirement savings from the current Exempt-Exempt-Taxable regime (which exempts contributions and the accumulated sums from income tax but levies tax on the final corpus) to a completely Exempt-Exempt-Exempt regime.

Over 12 lakh government employees are currently registered with NPS. However, when weighed against the fact that it has been more than six years since NPS was first made mandatory for government employees, the enrolments at 12 lakh do seem to be on the lower side. In May 2009, NPS was thrown open to the general public. The subscription levels so far have remained rather tepid and do not seem to reflect any investor interest in the product. The scheme has managed to draw less than 55,000 subscribers so far (October 2011). This is a rather low number, given that the scheme architecture was designed to make it attractive to the general public. In terms of money managed by the PFMs, as of March 31, 2011, the total assets under management by all PFMs amounted to Rs 8,585 crore. Of this, the contribution from the nongovernment sector does not exceed Rs 100 crore. This reflects the sluggish growth of NPS.

While the transition from DB to DC is a financially prudent and viable in terms of long term sustainability, the progress under NPS scheme has been sluggish, staggered and far below the potential. We need to look into what ails NPS and what can be done to popularise the scheme.

Sunday, November 13, 2011

Comprehensive Social Security Insurance Scheme - A concept note

Most of the insurance policies in India presently are exclusively in the domain of life, non-life (health) & pension. While life & non-life insurance schemes are regulated by Insurance Regulatory Development Authority (IRDA), pension schemes are regulated by Pension Fund Regulatory & Development authority (PFRDA). With the opening up of the Insurance sector in 1999, the number of companies, both in life and non-life, have gone up to 49 and the new era has seen the entry of international insurers, the proliferation of innovative products & distribution channels and raising of supervision standards. Insurance penetration (ratio of insurance premium underwritten as a percentage of GDP) in life insurance is 4.4 % and non-life insurance penetration is 0.7% in 2010 India . While less than 15% of total population is covered under some sort of health insurance (including government supported schemes), Pension coverage is even lower with only about 12 % of the working population covered under the formal pension schemes. At present rate, only 50% of the population is likely to get covered under health insurance by 2033 . However, most of these Insurers have confined their operations in cities and gradual penetration in tier II & tier III cities. The insurance coverage in rural areas is extremely low and is confined mainly to the top 3 % of the rural population. Insurance companies in rural areas are reluctant to enter aggressively mainly on account of low levels of insurance literacy, perceived lower levels of the ability to pay premiums, fear of sparse coverage geographically and thus low levels of premiums. Clearly, there is a need for quicker and wider coverage.
Rural market is supposedly tough for insurance companies and it’s only the subsidy based co-contributory insurance schemes for certain categories promoted by PSU Insurance companies that have made some inroads in rural areas. While LIC promotes Aam Aadmi Bima Yojana (AABY) & Janashree Bima Yojana (JBY) schemes in Life segment, it’s Universal Health Insurance Scheme (UHIS) by non-life PSU Insurers and Rastriya Swastha Bima Yojana (RSBY) by Ministry of labour & Employment in non-life- Health sector and “Swavalamban” ( NPS-lite) for pensions managed by PFRDA.
Insurance sector, since opening up of the insurance sector has undergone two phases –the first one being from 2000-2005 which was focussed on increasing coverage followed by the second phase of 2005-2010 where the focus of insurance companies was on profitable growth. The sector now is entering in the third phase which aims at ‘stable profitable growth’.
In an effort to ensure a balanced and speedy expansion of insurance coverage in the country, IRDA came out with regulations (Obligations of Insurers to Rural or Social Sectors), 2002. These regulations imposed obligations on insurers to sell a specified percentage of policies to rural public and cover a specified number of lives/assets belonging to people below poverty line or those pursuing certain traditional occupations. The Government of India set up a consulting group in 2003 to examine the existing insurance schemes for the rural poor; and on the basis of the group’s recommendations, the Authority issued IRDA (Micro insurance) Regulations, 2005. Consequent upon this notification, even though there has been a growth in the design of products catering to the needs of the poor, the rural penetration and density of Insurance products remains abysmally low. Not only the rural insurance and pension literacy is low but it gets further accentuated by the fact that insurance companies have not made any major efforts aimed at creating and capturing rural markets. It’s the beneficiary who is supposed to approach the insurance agent (unlike the urban market) as of now. Given the fact that there are plethora of schemes and each of them segmented on mutually exclusive domains and managed by different insurance company, it becomes almost impossible for the rural poor/ worker in an informal sector to make up his/her mind on the insurance policies to go in for. Moreover, because of the poor insurance literacy, the felt need is extremely low. And due to the fact that most of these poor / workers in informal sector have little savings on a long term basis, very little remains when one retires and the family is exposed to worst of economic hardships in case of any eventuality of the bread earner of the family. Moreover, there’s nothing left when one retires or has no job and the entire family suffers in old age. There also is an issue of what’s should be premium chargeable from them as too little makes the scheme unsustainable and ‘too high’ makes it impossible for this segment to contribute for.
All this makes a strong case for a “Comprehensive Social Security Insurance scheme” covering life, non-life and pension under one scheme. IRDA has already allowed insurance companies to offer “health plus life combi product”, a policy that provides life cover along with health insurance. Presently, a tie-up is permitted between a life and a non-life co. Under the ‘combi products’ the underwriting of the respective portion of the risks is underwritten by respective insurance company. While this was intended to facilitate policy holders to select an integrated product of their choice under a single roof, the ‘combi product’ somehow hasn’t really been a success and we need to look into the reasons.
The Standing Committee of Finance
(2010-11) in its fortieth report submitted on August 30, 2011 in fifteenth Lok Sabha has made the following observation...
“55. As the unorganized sector is a very important part of our society and economy, the Committee desire that their social security should be adequately safeguarded in the present era of craving for social inclusion. The Committee would, therefore, like the Government to work out a tripartite kind of a scheme where the State Government, the Central Government and the unorganized sector workers could make contributions. With such a comprehensive coverage, the present pension scheme which is rather narrow in scope now could move forward so as to truly justify its nomenclature as the National Pension System.”
Further, the recently concluded G20 Cannes Summit Final Declaration “Building our common future: renewed collective action for the benefit of all” dated November 4, 2011, inter-alia, declares:
“We recognize the importance of investing in nationally determined social protection floors in each of our countries, such as access to health care, income security for the elderly and persons with disabilities, child benefits and income security for the unemployed and assistance for the working poor.”
Target Group
The scheme is meant to provide a comprehensive Insurance coverage to workers (& their family) working in the informal/unorganised sector. The basic objective of having a social Security Insurance scheme is to bring in all those, who are otherwise left out of formal insurance cover especially Pensions, under Insurance coverage. As such, without restricting the coverage eligibility to an artificially defined line, it is proposed that anybody who is not presently covered under a formal pension scheme, such as Employee Provident Fund (EPF), Employees Pension Fund, Employees Deposit Link Insurance Scheme, Central Government Health Scheme (CGHS) & Employee State Insurance Scheme (ESIS), New (National) Pension Scheme (NPS) (tier I) and any other such scheme which is compulsory in nature for the employees and where the employer makes a co-contribution, will be eligible.
Components of the Comprehensive Insurance Scheme
1. Life – based on the existing schemes which are based on 50% co-contribution from Government of India (Aam Aadmi Bima Yojana & Janashree Bima Yojana), the life coverage will be as under:
a. Premium – Rs 300 pa.
b. Coverage-
i. Rs 50,000 – natural death
ii. Rs 100,000 – accidental death
iii. Rs 100,000 – total permanent disability
iv. Rs 60,000 – partial permanent disability
It will be a group insurance scheme and the family will be the unit. In the existing AABY & JBY scheme, the annual premium is Rs 200 and the coverage is Rs 30000, 75000, 75000 and 37500 for each of these categories respectively.
2. Health – Health insurance has to be an integral part of any comprehensive insurance scheme. It was initially felt that a health insurance scheme on lines of RSBY should be a part of this scheme. Since, it is envisaged to have a separate comprehensive Universal Health Insurance Scheme including preventive health, Maternity benefits and child care also, the health insurance is not being considered under this scheme.
3. Scholarship for Girl children – all the girl students, studying in class IX-XII will be eligible for scholarship whose parents opt for the comprehensive Insurance Scheme. The amount of scholarship will be @ Rs 800, 1200, 1800 & 2400 pa once the girl completes class IX, X, XI and XII respectively and will be given once a year at the end of the academic year and after she has passed the examinations. This will act as a conditional incentive linked aimed at encouraging the girl child to complete the secondary education. There will not be any limit on the number of Girl children to be covered under this scheme for a family.
4. Pension- the most crucial missing link presently leading to insecurity at the old age and associated issues is the presence of a pension system for workers and their families in the unorganised sector. Keeping in tune with what’s practised globally and pension principles, most of the pension schemes in the country have moved away from Defined Benefit to Defined contribution based system. The NPS scheme launched in 2004 is the latest such scheme. Funds are invested under a pattern defined by the regulator by the Pension Fund Managers with a twin objective of minimising the risk and maximising returns.
In order to encourage workers in the informal sector to save for pensions voluntarily, a scheme called “Swavalamban” was launched by the Central Government in September 2010, wherein for a saving of Rs 1000-12000 pa, the Central Government makes a co-contribution of Rs 1000 pa for the first five years starting 2010-11. The funds are invested by the Pension Fund managers and annuities will be provided to the policy holders once they attain the retirement age. Due to various factors such as low awareness, lack of proper marketing of the product and structural issues, the coverage under Swavalamban has remained very low. However, a fact that the scheme as envisaged aims to target workers who can save in the range of Rs 1000-12000 pa and there are large number of workers who can’t save Rs 1000 pa. Moreover, it needs to be studied as to what’s been the average saving per account for every Rs 1000 contribution of the Central Government and as such the issue whether targeting wasn’t done properly needs to be examined.
Taking Swavalamban as a guiding scheme in terms of Central Government contribution being Rs 1000 for a worker saving between Rs 1000-12000pa and its experience in terms of its failure to take off, it is proposed that Central Government contribution towards pension funds should be atleast Rs 2000 pa. Depending upon the age at which a worker enters the scheme, his annuity payable at the time of retirement will be determined. Moreover, it is a Pension scheme and not a saving scheme and as such, withdrawals before the retirement age will not be possible.
Premium structure – whether beneficiary should pay and how much?
We need to answer whether beneficiary should pay for such a scheme. The scheme basically by definition is based for the worker in the unorganised sector. The issues to be addressed are regarding his capacity to save voluntarily in the normal course and which he is willing to contribute as his share in the scheme. I am presuming that a worker is willing to save @Rs 5 per day ie Rs 150 per month or upto Rs 1800 per annum as the upper limit. Any premium above this will not be affordable by him. There’s also an issue of the collection cost and whether it will outstrip the premium itself. Regarding the willingness to pay, in a study conducted in 2005, it is established that there is a willingness to pay for health insurance . It is thus felt that there are tremendous advantages in mandating beneficiary contribution under such a scheme. The beneficiary will be a stakeholder and will be more aware about his entitlements. It will also imply the actual coverage of real beneficiaries and will guard against any misuse or inflated coverage. In the long run, it will ensure sustainability of the scheme.
Accordingly, it is felt that there should be tri-partite agreement between Central Government, State Government and the beneficiary. While there are apprehensions whether the State Governments would agree to contribute in such a scheme, the experience under NPS-lite ( Karnataka and Haryana) and some of the other schemes (MSP based procurement of foodgrains – in MP, Bihar etc) have shown that States may like to get involved if they see a ‘political value addition’ in such a scheme. Moreover, it is felt that State Government’s involvement will ensure against wastage under the scheme and against any exaggerated coverage.
The funding pattern of the annual premium on a per beneficiary basis is suggested as under:
In a typical first year scenario it is presumed that the beneficiary contributes Rs 500, State Government Rs 700 and Government of India Rs 1500 and thus the annual premium will be Rs 2700 per beneficiary.
With Rs 300 as annual premium for life coverage, and Rs 150 for the annual administrative charges, Rs 2250 will remain for towards annuity contribution under the pension accounts. Depending upon the age at which the beneficiary enters the scheme, the derivable pension structure per beneficiary per month will be:

Figures in column 1 is age in years, the figures in column 2,3,4,5 represent annual figures in Rs while figures in last column are monthly pension due to the beneficiary. The above calculations are based on an average return of 7% pa (the actual return is higher in the range of 9-12 % and thus the yield would be better) and the returns based on the actuarial valuation are thus likely to be higher.
However, these figures are not adjusted for inflation and considering a nominal inflation of 5% pa for this entire duration, the additional contribution required per annum, to keep the inflation adjusted value at the same level will be Rs 1845 pa for the age group 20 years to Rs 570 pa for the 55 age group.
The requirement of funds from Central Government will be Rs 1800 crores (Rs 1500 crores towards life & pension coverage @ Rs 1500 pa and Rs 300 crores for Girl child scholarships) for every 10 million family coverage. The State Government’s contribution will be Rs 700 crores pa. Depending upon the increasing coverage overtime, the requirement of funds will increase @Rs180 crore for a million coverage for GOI and Rs 70 crore per million for the state Government.
Implementation architectureSince two separate products – life (which is annual) and pension (which is annuity based accumulation) will have to be managed, an un-bundled architecture is proposed to manage the comprehensive social Security Insurance scheme, based on the NPS architecture being followed to manage the pension funds by the PFRDA and some of the best global practices in pension fund management. The unbundled architecture focuses on keeping the entry level agencies (Aggregators/point of presence), CRA (Central record keeping agencies) and Fund Managers separately.
The key constituents are:
Point of Presence (POPs): POPs are the interface between the policy holder and Insurance authorities. Effectively, the POP is only a conduit between the investor and the Central Record Keeping Authority (CRA) for information and between the investor and the Fund Managers for managing the reverse flow of keeping the investor apprised with regular NAV updates. There are three broad categories of PoPs:
1) POPs -So far, the POPs have included branches of banks (from both the public and private sectors), post office branches, depository participant offices and NGOs.
2) Aggregators - Aggregators shall be intermediaries identified and approved by the Central Nodal agency to perform subscriber interface functions in respect of their constituent groups. The Aggregators shall be entities already in existence having continuous functional relationship with a known customer base for delivery of some socio-economic goods / services. LIC, State Govt departments, State govt Societies such as SERP, WCD, NGOs etc are some of the institutions who could be an Aggregator. The Aggregator must be a registered body. The aggregators shall be responsible for a) Promotion of the scheme and awareness about the need for old age income security among its constituent group members; b) Meeting the ‘Know Your Customer’ requirements in respect of potential subscribers as mandated; c) Discharge of responsibilities relating to fund and data upload within prescribed time limits. d) Collection of contributions from subscribers and ensuring its passage to Trustee Bank;e) Ensuring availability of services to its underlying subscribers as mandated under the pension scheme; f) Handling grievances received from subscribers and their resolution.
Each of the Aggregators will operate through a system of Facilitators.
3) Facilitators – the facilitators are the individuals who are based in the locality where the beneficiaries are and they are the last mile connectivity in the link of enrolment of beneficiaries and will provide the necessary hand-holding to each of the beneficiary. The existing network of LIC agents (about 14 lakhs), Business Correspondents (BCs), aanganwadi workers, ASHA workers, ANMs, Teachers are some of the categories who will be facilitators. They will all work on a commission on a per enrolment basis, to be decided by their Aggregators.
CRA - the Central Recordkeeping Agency (CRA) will be a centralised agency at the national level to maintain the records of contribution and its deployment in various pension fund schemes for the Subscribers. CRA will carry out the functions of Record Keeping, Administration and Customer Service for all Subscribers under the proposed comprehensive pension scheme. The records of the contributions of each Subscriber will be kept in an account known as the Permanent Retirement Account which shall be identified by a Permanent Retirement Account Number (PRAN) (similar to what’s already available under the NPS system). CRA shall issue a PRAN to each Subscriber on his/her successful registration and maintain database of each Permanent Retirement Account along with recording of transactions relating to each PRAN.

Trustee Bank – A nationalised Bank will be appointed as a Trustee Bank who will manage the banking of the Pension Funds in accordance with applicable provisions of the pension funds, the schemes and the guidelines/notifications issued by the Government of India from time to time as per applicable law.

Exit clause: the purpose of having such a comprehensive insurance scheme is to provide old age income security and it is thus clear that the pension funds getting accumulated are not to be taken as a savings accounts and are not withdrawable before retirement.