Daily wage earners can dream pension

MUMBAI: Receiving a pension is usually a middle class prerogative. But daily wage earners in India — like coolies on railway platforms, the neighbourhood cabbie, milk vendors, farmers, and the dabbawallahs of Mumbai — usually stare at a bleak future once their working lives are over.

In this discrepancy, UTI Mutual Fund reckons there is a huge opportunity. Which is why, the fund has initiated negotiations with unions, co-operative societies and self-help groups that represent these workers.

The plan is a fairly straight forward one. Members of the unions will contribute at least Rs 100 each month into a common pool until they reach age 55. Every month, this money is invested into UTIMF’s Retirement Benefit Pension Fund. On reaching 58, UTIMF will start paying them on a regular basis. In case of death, a nominee will receive the balance.

Confirming the plans, UK Sinha, chairman, UTIMF, said the company’s employees are working like missionaries to sell the plan to every part of the country. Currently, UTIMF is in talks with the dabbawallahs and taxi unions in Mumbai, the Co-operative Milk Federation in Bihar, the Indian Railways and self-help groups in seven states. A pilot project with IFFCO to rope in one lakh farmers from five districts in the country is also on. The sales force is also being sent to slums where the benefits of a plan like this are being preached. Sinha says the fund wants 5 lakh people in the scheme over six months.

On Thursday, UTIMF signed up with the Bank of India to provide members of self help groups with this micro-pension plan. The industry is watching the plan unfold with a great deal of interest.

Many in the business reckon what he’s trying to do is introduce the concept of defined contribution (DC) into India’s pension landscape. The current system of pension that India follows is what the industry calls defined benefit (DB). Under this system, you contribute something to your pension plan and the government assures you a 9per cent return.

Under the new DC system, what you contribute is fixed. The returns aren’t. It depends on how intelligently the pension fund manager deploys the money. To that extent, returns follow the market. This was an idea Sinha had proposed when he was joint secretary in the finance ministry a few years ago.

He had recommended stopping guaranteeing fixed returns. That was when he was among the people called on to come up with a plan to overhaul the country’s pension system. But political opposition kept the plan out of sight.