Will giving poor people bank accounts also ensure social security for them?
That's what the government seems to believe. At a function in Kolkata on Saturday, Prime Minister Narendra Modi launched three initiatives that provide pension and insurance benefits for the 12.5 crore people who have taken advantage of the Pradhan Mantri Jan Dhan Yojana, which aims to get more households to open bank accounts. The effort, Modi said, was to go from jan dhan or financial inclusion to jan suraksha – social protection.
The three schemes – the Atal Pension Yojana, the Pradhan Manti Suraksha Bima Yojana and the Pradhan Mantri Jeevan Jyoti Bima Yojana – build on existing central initiatives for workers in the unorganised sector. In their new avatar, the schemes offer increased coverage. In addition, since they will be operated through a single bank account, it is expected that they will be easier to sign up for.
Yet, pressing questions remain, since the government has not yet described the administrative mechanisms for implementing these schemes. Besides, though Finance Minister Arun Jaitley first announced these three schemes in his budget speech on February 28, there is no word yet on budgetary allocations and targets for them. The schemes will be effective from June 1.
Pensions in unorganised sector
The Atal Pension Yojana will provide pensions to workers in the unorganised sector who are not covered by other pension or provident fund schemes. Workers will get a minimum payout of Rs 1,000 per month and a maximum of Rs 5,000 per month at the age of 60 years, depending on how much money they put into the scheme over 20 years. For instance, to get a monthly pension of Rs 1,000, an 18-year old worker will have to contribute at least Rs 42 a month for the next 42 years. A worker who joins when she is older, say at the age of 42, must contribute Rs 291 a month for 18 years to get a Rs 1,000 pension when she turns 60. If workers enroll in the scheme before the end of the year, the government will match their monthly contributions for five years.
Swavlamban 2.0
The Atal Pension Yojana's provisions mirror those of the existing Swavlamban pension scheme started in 2010, which aims to encourage workers in the unorganised sector to save for the future. For workers who enrolled in the scheme before 2013, the government had agreed to pay a total of Rs 3,000 over three years with workers paying a minimum contribution of Rs 1,000 per year and maximum contribution of Rs 12,000.
So far, the Swavlamban scheme has not been very effective. Till 2014, it had only 30 lakh beneficiaries, a fraction of the 43.7 crore workers in India’s unorganised sector.
So, will Swavlamban version 2.0 do better?
"The choice to enroll in the three schemes will be available when beneficiaries get a Jan Dhan Yojana bank account," said a senior official involved with implementing these schemes. “This will make the schemes easier to access than previous schemes.” He added that contributions made into the schemes will be invested to give a return of at least 8% per year, which will protect workers' funds.
“Previously, there was no clear guarantee of return,” said Dr Nishant Jain, Deputy Programme Director of the Indo-German Social Security Programme. “Now the government has announced a minimum amount of Rs 1,000 as pension if workers contribute regularly. This guarantee may potentially encourage more people to opt for the scheme.”
Despite this, the assumed rate of return may not be adequate to attract workers to sign up, economist Dr Ravi Srivastava said. As per a back-of-the-envelope calculation by Srivastava, a member of the National Commission for Enterprises in the Unorganised Sector set by the United Progressive Alliance government, the scheme calls for a total contribution of Rs 70,000 over 20 years for a beneficiary to receive a pension of Rs 1,000. “Workers may not see any benefits in this as their focus is on present needs more than future consumption,” he said. “For the working poor to opt in to contribute over 20 years will require building trust that this will pay out to their benefit.”
Though the exact benefits for workers are still unclear, the schemes could buoy the banks participating in the Pradhan Mantri Jan Dhan Yojana. People opening accounts under this financial inclusion scheme do not necessarily have to put any money into them. But if they avail of these new schemes, they will be required to have certain minimum balances. For banks, this may make maintaining Jan Dhan bank accounts financially more feasible, said Srivastava.
Insurance for the poor
Two of the schemes announced on Saturday will provide insurance benefits.
Under the Pradhan Manti Suraksha Bima Yojana, all Jan Dhan bank account holders can get accident insurance with a sum assured of Rs 2 lakh at a premium of only Rs 12 a year. Under the Pradhan Mantri Jeevan Jyoti Bima Yojana, beneficiaries below age of 50 can get a life insurance cover of Rs 2 lakh at an annual premium of Rs 330. The scheme will be offered through the Life Insurance Corporation of India, as well as other insurers willing to tie up with banks for this.
Both schemes build on the existing Aam Aadmi Bima Yojana started in 2007 to extend insurance to landless agriculturists and workers in 46 other trades in the unorganised sector, such as beedi workers, fishermen, weavers through LIC. The new schemes, however, increase the insurance cover significantly from the previous limits of Rs. 30,000 for natural death, and Rs. 75,000 in case of death due to accidents based on a premium of Rs 200 per person per year.
However, the financial feasibility of these new schemes is not clear. As the Business Standard reported, with prices so very low, insurers and banks have stated they will not be able to earn significant revenue from these schemes, or even cover the service costs.
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That's what the government seems to believe. At a function in Kolkata on Saturday, Prime Minister Narendra Modi launched three initiatives that provide pension and insurance benefits for the 12.5 crore people who have taken advantage of the Pradhan Mantri Jan Dhan Yojana, which aims to get more households to open bank accounts. The effort, Modi said, was to go from jan dhan or financial inclusion to jan suraksha – social protection.
The three schemes – the Atal Pension Yojana, the Pradhan Manti Suraksha Bima Yojana and the Pradhan Mantri Jeevan Jyoti Bima Yojana – build on existing central initiatives for workers in the unorganised sector. In their new avatar, the schemes offer increased coverage. In addition, since they will be operated through a single bank account, it is expected that they will be easier to sign up for.
Yet, pressing questions remain, since the government has not yet described the administrative mechanisms for implementing these schemes. Besides, though Finance Minister Arun Jaitley first announced these three schemes in his budget speech on February 28, there is no word yet on budgetary allocations and targets for them. The schemes will be effective from June 1.
Pensions in unorganised sector
The Atal Pension Yojana will provide pensions to workers in the unorganised sector who are not covered by other pension or provident fund schemes. Workers will get a minimum payout of Rs 1,000 per month and a maximum of Rs 5,000 per month at the age of 60 years, depending on how much money they put into the scheme over 20 years. For instance, to get a monthly pension of Rs 1,000, an 18-year old worker will have to contribute at least Rs 42 a month for the next 42 years. A worker who joins when she is older, say at the age of 42, must contribute Rs 291 a month for 18 years to get a Rs 1,000 pension when she turns 60. If workers enroll in the scheme before the end of the year, the government will match their monthly contributions for five years.
Swavlamban 2.0
The Atal Pension Yojana's provisions mirror those of the existing Swavlamban pension scheme started in 2010, which aims to encourage workers in the unorganised sector to save for the future. For workers who enrolled in the scheme before 2013, the government had agreed to pay a total of Rs 3,000 over three years with workers paying a minimum contribution of Rs 1,000 per year and maximum contribution of Rs 12,000.
So far, the Swavlamban scheme has not been very effective. Till 2014, it had only 30 lakh beneficiaries, a fraction of the 43.7 crore workers in India’s unorganised sector.
So, will Swavlamban version 2.0 do better?
"The choice to enroll in the three schemes will be available when beneficiaries get a Jan Dhan Yojana bank account," said a senior official involved with implementing these schemes. “This will make the schemes easier to access than previous schemes.” He added that contributions made into the schemes will be invested to give a return of at least 8% per year, which will protect workers' funds.
“Previously, there was no clear guarantee of return,” said Dr Nishant Jain, Deputy Programme Director of the Indo-German Social Security Programme. “Now the government has announced a minimum amount of Rs 1,000 as pension if workers contribute regularly. This guarantee may potentially encourage more people to opt for the scheme.”
Despite this, the assumed rate of return may not be adequate to attract workers to sign up, economist Dr Ravi Srivastava said. As per a back-of-the-envelope calculation by Srivastava, a member of the National Commission for Enterprises in the Unorganised Sector set by the United Progressive Alliance government, the scheme calls for a total contribution of Rs 70,000 over 20 years for a beneficiary to receive a pension of Rs 1,000. “Workers may not see any benefits in this as their focus is on present needs more than future consumption,” he said. “For the working poor to opt in to contribute over 20 years will require building trust that this will pay out to their benefit.”
Though the exact benefits for workers are still unclear, the schemes could buoy the banks participating in the Pradhan Mantri Jan Dhan Yojana. People opening accounts under this financial inclusion scheme do not necessarily have to put any money into them. But if they avail of these new schemes, they will be required to have certain minimum balances. For banks, this may make maintaining Jan Dhan bank accounts financially more feasible, said Srivastava.
Insurance for the poor
Two of the schemes announced on Saturday will provide insurance benefits.
Under the Pradhan Manti Suraksha Bima Yojana, all Jan Dhan bank account holders can get accident insurance with a sum assured of Rs 2 lakh at a premium of only Rs 12 a year. Under the Pradhan Mantri Jeevan Jyoti Bima Yojana, beneficiaries below age of 50 can get a life insurance cover of Rs 2 lakh at an annual premium of Rs 330. The scheme will be offered through the Life Insurance Corporation of India, as well as other insurers willing to tie up with banks for this.
Both schemes build on the existing Aam Aadmi Bima Yojana started in 2007 to extend insurance to landless agriculturists and workers in 46 other trades in the unorganised sector, such as beedi workers, fishermen, weavers through LIC. The new schemes, however, increase the insurance cover significantly from the previous limits of Rs. 30,000 for natural death, and Rs. 75,000 in case of death due to accidents based on a premium of Rs 200 per person per year.
However, the financial feasibility of these new schemes is not clear. As the Business Standard reported, with prices so very low, insurers and banks have stated they will not be able to earn significant revenue from these schemes, or even cover the service costs.
