Ways to widen NPS cover among low earners mooted

With just 5 million non-salaried individuals enrolled under the National Pension System (NPS) in the past 12 years, a new survey has found that retirement savings for unorganised sector workers should be allowed in flexible installments rather than periodically. It also called for removal of entry barriers like mandatory email ID for enrollment in the NPS to make the NPS more attractive for low earners.

The survey found that while 87% people in urban areas have active e-mail IDs, only 48% in rural areas have email IDs.

Even though email connectivity in rural areas is almost half that of urban, nearly 2 out of 3 in rural areas stay connected through WhatsApp, according to a Sambodhi Research and pinBox Solutions pan-India survey aiming to profile the latent pension demand among informal sector workers. The frequency of using WhatsApp in metropolitan cities is about the same as in off-metro cities having a population between 0.1 to 1 million.

“There is a need to align savings much more in line with income by allowing people to save smaller amounts in multiple installments in a month, or quarter, rather than lump-sum amounts periodically, to make the NPS more attractive and affordable. Some barriers like a mandatory email ID could also be removed to make NPS more universally available. Subscribers should be able to use an OTP on mobiles to undertake secure transactions that require a verification of their identity,” said Gautam Bhardwaj, co-founder of pinBox, a global pension tech firm committed to digital micro-pension inclusion in Asia and Africa.

In 2009, the government launched NPS schemes for India’s 400 million informal sector workers to voluntary accumulate retirement savings, but so far managed to enroll just a little over 1% of them, partly due to the design flaws mentioned above. Most of the nearly Rs 7.5 trillion NPS corpus is from the organised sector workers, especially government employees for whom the scheme is mandatory.

In urban areas, most people get paid on a monthly basis, while in rural areas, it is split between daily wage payments, seasonal earnings from agriculture, and monthly payments. Similarly, on the savings front, most urban residents save monthly while rural residents tend to save when they can.

While most earners across urban and rural areas tend to believe that retirement savings should commence towards the middle or late twenties, this is not wholly reflective of their actions. In reality, less than 80% of urban residents and 60% of rural residents are currently saving for their old age.

“People above 35 still tend to cling on to the notion that their children will take care of them in their old age, a sentiment which is shared by a much lower proportion of those who are younger. The real issue is that just about 30% of the rural poor, which is around 65 million households, believe that by the time they retire from work, they would have saved enough to support themselves in their old age,” said Sandeep Ghosh, Team Lead, Sambodhi Panels.

Across most income groups, the preference is for saving 6-10% of income; the lowest income group prefers less than 5%, while higher earners tend to prefer 6-10%.

The survey sample size was about 12,000, with 8,000 respondents from urban areas and 4,000 from rural areas of the country.