In March 2015, launching the National Democratic Alliance government’s key social security schemes, Prime Minister Narendra Modi announced the Atal Pension Yojana, a contributions-based defined pension plan for workers in the unorganised sector who are otherwise not covered by any pension or provident fund schemes.
The idea, Modi said, was to expand “jan dhan” – or the Pradhan Mantri Jan Dhan Yojana through which the government is trying to link every household to a bank account – to provide “jan suraksha”, social security for all.
The pension plan entitles workers to receive a minimum of Rs 1,000 per month and a maximum Rs 5,000 per month on reaching the age of 60, depending on how much money they have put into the scheme through bank account payments over a minimum of 20 years. As an incentive, the government offered to make a co-contribution of 50% of the subscriber’s contribution up to an annual limit of Rs 1,000 for a period of five years, provided they were enrolled by December 2015. This was later extended till March 31, 2016. The scheme now is largely self-financed by workers.
But less than two years since its launch, the government seems to have gone silent on this key social security offering for the working poor. Presenting the Union Budget on February 1, Finance Minister Arun Jaitley spoke of social security for senior citizens and referred to Aadhaar-based health smart cards and a new Life Insurance Corporation pension scheme. But there was no mention of the Atal Pension scheme.
What explains this silence?
Coverage at 1%
Data shows that the Atal Pension Yojana has not done as well as the government had projected it would, though it has performed marginally better than its precursor, the United Progressive Alliance government’s Swawlamban pension, which had 40 lakh subscibers in four years.
Till February 2017, 42.8 lakh subscribers had opted for the Atal Pension Yojana, which is less than 1% of India’s 44 crore unorganised workers – domestic workers, vendors and ragpickers among others. The unorganised sector, in turn, makes up 90% of India’s workforce.
Under this plan, contributions vary depending on the age at which a worker enrols. For instance, to get a monthly pension of Rs 1,000, an 18-year-old will have to contribute at least Rs 42 a month for 42 years. But a worker who enrols much later, say at the age of 40, must contribute Rs 291 a month for 20 years to be eligible for the monthly pension of Rs 1,000 on turning 60.
Different from a social pension from the government, the scheme functions more like a financial instrument with assured returns. Contributions made to it are invested to give a return of at least 8% a year, which means that the government protects workers’ funds to yield at least this return even if there are market fluctuations.
But despite such a guarantee, 48.1% of the 42.8 lakh subscribers have opted for the lowest pension category of Rs 1,000 per month, according to the Pension Fund Regulatory and Development Authority, the government’s pension regulator. And while 37.4% of total subscribers have signed up for the highest category of Rs 5,000 per month, officials said they may include middle or high-income individuals who are not the focus of the scheme.
Overall, more than half the subscribers are unable to save up to even afford a monthly pension of Rs 2,000, and nearly 63% have opted for a pension of less than Rs 5,000 per month.
“This shows nearly 63% of workers who have opted for the scheme are economically hard-pressed,” said Dr BS Bhandari, whole time member (economics) in the Pension Fund Regulatory and Development Authority.
Of the 42.8 lakh subscribers, 41.9 lakh have opted to make monthly payments that are auto-debited from their bank accounts. Of those who joined the scheme in 2015, about two-thirds have continued to make their contributions for the second year, the officials said.
“The persistency rate is between 70% and 75%, which shows the proportion of subscribers from 2015 period who continued to make a contribution in 2016,” said Bhandari. “But we have allowed flexibility of payments and expect some of them who missed payments in 2016 to make contributions this year.”
At the time of its launch, development economists had pointed out that a contributory scheme such as this may exclude a large number of casual workers who may find it difficult to maintain steady contributions for 20 to 25 years. This is what seems to be happening now.
Inadequate pensions
Dr Nishant Jain, who is deputy programme director Indo-German Social Security Programme said though the total figure of 42.8 lakh is a very small proportion of the workforce of over 40 crore, in comparison with the previous similar scheme Swawlamban pension, Atal Pension marks an improvement. “One has to analyse the figures of a social context where a majority of households do not save for old age at all,” said Dr Jain. “A persistency rate of 70-75% is also good, if it maintains over the next few years.”
Other social policy experts, however, have analysed that the tepid response to the scheme may be that the pension amounts ranging from Rs 1,000 to 5,000 a month, which beneficiaries will start receiving only after a minimum of 18 years from now, are highly inadequate.
“The annuities promised are too low and do not seem sufficient when adjusted against inflation rates,” said Kinjal Sampat, a researcher with the non-profit Centre for Equity Studies.
Researchers have calculated what annuities under the Atal Pension Yojana would amount to by the time they are realised by the beneficiary as per the investment plan and after taking an inflation average of 6.6% based on consumer price index inflation between 2001 and 2016.
Vivek Mishra, also a researcher at the Centre for Equity Studies, said that even in a best-case scenario, in which a 40-year-old worker starts contributing towards a monthly pension of Rs 5,000, the present value of this future amount is Rs 1,393, which is less than 50% of the present minimum wage. “Even for this, a worker would have to pay a monthly contribution of Rs 1,454 for about 20 years,” he noted. And if an 18-year-old starts saving to receive the lowest pension amount of Rs 1,000, this annuity in 42 years would amount to Rs 68 per month at its current value, which is extremely low.
“This shows that the pensions are going to be very inadequate for subscribers,” said Sampat. “Despite a government guarantee on the pension amount, unorganised sector workers are too poor to afford a contribution-based financial scheme. At the same time, those who are subscribing to it really need support.”
She added, “The numbers show the Atal Pension scheme cannot substitute a universal, government social pension for the working poor.”