Gift a pension this festival season
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The mass affluent Indian home is run on the steam of its band of domestic help—garbage collector, cleaner, housekeeper, cook, driver, gardener, guard, car cleaner, and more—which provides direct services to the household. Then there are the vendors—presswallah, newspaperwallah, flowerwallah. As the wealth level rises, so do the number of people working to make the lives of the rich healthier—add on now the yoga teacher, and the physical fitness trainer. As a mean aside, I can’t help but remember my yoga teacher, who said that the rich homes he went to had fat and unhealthy masters and trim and healthy household help! Their collective salary bill will be a fraction of the monthly income of the mass affluent household.
If you have the bad habit of listening in on conversations in public places, as I have, you’ll hear two persistent conversation threads. Parks have groups of old women cribbing about daughters-in-law, and ladies who lunch in spiffy outfits, holding nice handbags, are cribbing about the same moms-in-laws. But that’s another column! Let’s stay with the help. Earlier this year there was this lunch and I walked up to a table that had four doctors—all in one family—chatting animatedly. “Talking about medical stuff?” was my pathetic attempt at cheerful small talk. “No!” they turned as one and replied. “We’re talking about maids and how difficult it is to keep them.” Eavesdrop on the driver or maid gossip circuit and the cribs are all about miserly employers and how they spend lavishly on a meal out but are unable to loan them small amounts in times of emergency.
While I’m not taking sides here, the burden of care—irrespective of how many times we’ve been ripped off by unscrupulous help—rests with the party with the superior bargaining power, and that’s us. So, even if there are issues with disloyal help or drivers who have vanished with a large advance, we need to still keep chipping away at getting the urban informal workers a degree of financial security that they currently do not have.
I have experimented with a variety of ways to do this but have always failed. Three reasons: first, the on-boarding is almost impossible—I can get my own agent to get them the product but the product size and type is not what they need. Second, I can get my agent to onboard them, but when they leave my service, what happens to the product then? My agent was only doing it because of the pressure I put on him. We need a system so that the continuation of their products is not dependent upon me, but is something that they can continue once I have got them on to the product. Third, how to ensure a smooth cash-out or a claim process that does not need them to remain dependent on me.
I remember chatting with Gautam Bharadwaj (he runs the Micro Pension Foundation and was part of the original team that thought about market-linked defined contribution pensions in India more than 15 years ago. The National Pension System, or NPS, is the result of those thoughts) and his team on this issue several times. This is not to take credit for the product—the huge work done by the team is not mine—but to put in public domain any intellectual conflict of interests that could be there in this piece. The Micro Pension Foundation is finally ready with a product that solves the on-boarding problem and I’ve used Gift A Pension (www.giftapension.com ) this week to initiate a pension plan for my help. I pay Rs.300 to get them on board and open an account online. My help will get a kit with a card that stores all their details including name, address and know-your-customer (KYC) details. Once I’ve got them on board, the company will communicate directly with them. The card is portable—they take it with them to their next job.
A bank account is not needed, though if you are doing this, go a bit further and help them open one. The product you get is the NPS Lite, which is a smaller ticket version of NPS. It allows for smaller contributions and gets Rs.1,000 from the government for contributions between Rs.1,000 and Rs.12,000 in a year. The Pension Fund Regulatory and Development Authority will issue a PRAN (Permanent Retirement Account Number) card to the help, which will be sent to their address. Contributions can be made online by you—you can choose to either just credit the amount you deduct from their salaries to the NPS Lite account, or you could match what they save from their salary, or just make the contributions for them. Remember not to go over the Rs.12,000 a year limit because the government only gives Rs.1,000 to each NPS Lite account that manages to save between Rs.1,000 and Rs.12,000 in a year.
At the moment, the product has a built-in life insurance plan from SBI Life Insurance Co. Ltd for Rs.30,000 that costs Rs.135 a year for people under 30. They have the option of not continuing the cover after a year.
The next step will be to build a good medical cover through this doorway. Here’s hoping they pick a company that’s known for a good combination of reasonable premium and claims experience track record.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money , Yale World Fellow 2011 and on the board of FPSB India. She can be reached at firstname.lastname@example.org