Chapter 9

Insurance facilities - Micro Insurance

Need for Micro-Insurance – Risks Faced by the Poor

Micro-insurance is a key element in the financial services package for people at the bottom
of the pyramid. The poor face more risks than the well-off, but more importantly they are
more vulnerable to the same risk. Usually, the poor face two types of risks – idiosyncratic
(specific to the household) and covariate (common, e.g., drought, epidemic, etc.). To
combat these risks, the poor do pro-active risk management – grain storage, savings, asset
accumulation (especially bullocks), loans from friends and relatives, etc. However, the
prevalent forms of risk management (in kind savings, self-insurance, mutual insurance)
which were appropriate earlier are no longer adequate.

Poverty is not just a state of deprivation but has latent vulnerability. Micro-insurance
should, therefore, provide greater economic and psychological security to the poor as it
reduces exposure to multiple risks and cushions the impact of a disaster. There is an
overwhelming demand for social protection among the poor. Micro-insurance in
conjunction with micro savings and micro credit could, therefore, go a long way in keeping
this segment away from the poverty trap and would truly be an integral component of
financial inclusion.

Defining Micro-Insurance
The draft paper prepared by the Consultative Group to Assist the Poor (CGAP) working
group on micro-insurance defines micro-insurance as “the protection of low income
households against specific perils in exchange for premium payments proportionate to the
likelihood and cost of the risk involved.” The paper deliberates on the key roles to be played
by all stakeholders – insurers, regulator and the Government. The working group also agrees
that the cost of such cover should be affordable.

Consultative Group on Micro-Insurance Constituted by GoI

In 2003, GoI constituted a Consultative Group on Micro-Insurance to examine existing
insurance schemes for rural and urban poor with specific reference to outreach, pricing,
products, servicing and promotion and to examine existing regulations with a view to
promoting micro-insurance organizations with specific reference to capital requirements,
licensing, monitoring and review, etc. The report of the consultative group has brought out
the following key issues:

 Micro-insurance is not viable as a standalone insurance product.

 Micro-insurance has not penetrated rural markets. Traditional insurers have not
made much headway in bringing micro-insurance products to the rural poor. (In
addition, the Committee feels that micro insurance has not penetrated even among
the urban poor).
 Partnership between an insurer and a social organisation like NGO would be
desirable to promote micro-insurance by drawing on their mutual strengths.
 Design of micro-insurance products must have the features of simplicity, availability,
affordability, accessibility and flexibility.
Findings of the UNDP Study Report
A study commissioned by the United Nations Development Program (UNDP) titled “Building
Security for the Poor - Potential and Prospects for Micro-insurance in India” states that 90%
of the Indian population - some 950 million people - are not covered by insurance and
signify an untapped market of nearly US$2 billion. This enormous “missing market” is ready
for customized life and non-life insurance, but first, serious mismatches between the needs
of the insured and the insurers must be overcome, pitting priorities against profits.

The UNDP report has analysed six key issues pertinent to the growth of the micro-insurance
industry in India, capturing the concerns of different stakeholders as indicated below:

 There are specific reasons for low demand for insurance in spite of intense need.
Suppliers have their own concerns which helps to explain why there have been so
little efforts at market development. Consequently, the rural market is characterized
by limited and inappropriate services, inadequate information and capacity gaps.
 There are challenges in product design, which has resulted in a mismatch between
needs and standard products on offer. Efforts at product development /
diversification have been limited.
 Pricing, including willingness to pay and the availability of subsidies, influence the
market. In the absence of a historical data base on claims, premium calculations are
based on remote macro aggregates and overcautious margins. Building and sharing
claims histories can help in aligning pricing decisions with actuarial calculations,
thereby reducing prices.
 Difficulty in distribution is one of the most cited reasons for absence of rural
insurance. The high costs of penetrating rural markets, combined with
underutilization of available distribution channels, hinder the growth of rural
insurance services. This adds to costs, both, managerial and financial. Like inclusive
credit, inclusive insurance is expected to be a “low ticket” business, requiring
volumes for viability.
 Cumbersome and inappropriate procedures inhibit the development of this sector.
 Contrasting perspectives of the insured and the insurers, lead to low customization
of products and low demand for what is available.
 The UNDP report further states that micro-insurance solutions should, therefore,
attempt at addressing key issues that will improve customer satisfaction (demand-
supply gaps, appropriate products and pricing), provide distribution efficiencies for
better outreach and remove procedural hassles facilitating easier renewals and claim
settlements. With a view to reduce costs, the report has also suggested that the
premier payable on micro-insurance be exempted from payment of service tax, which
will also enable greater penetration in rural markets.

Delivery Mechanism: Micro-Insurance Models

Key concern in the pricing of an insurance product is the element of cost of acquisition and
its delivery. Obviously, the delivery costs have to be contained to keep the cost of insurance
sufficiently low to attract the poor and to incentivize the insurer to venture into this
segment viewing it as a genuine market opportunity.
The Committee studied four different models for delivering micro-insurance services to the
targeted clientele:

Partner - Agent Model:

 Insurers utilize MFIs’ delivery mechanism to provide sales and basic services to clients.
 There is no risk and limited administrative burden for MFIs.

Full Service Model:

 The provider is responsible for all aspects of product design, sales, servicing, and
claims assessment.
 The insurers are responsible for all insurance-related costs and losses and they retain
all profits.

Community Based Model:

 The policy holders own and manage the insurance program, and negotiate with
external health care providers.

Provider Model:
 The service provider and the insurer are the same, i.e., hospitals or doctors offer
policies to individuals or groups.

Linking Micro-credit with Micro-insurance

It is becoming increasingly clear that micro-insurance needs a further push and guidance
from the Regulator as well as the Government. The Committee concurs with the view that
offering microcredit without micro-insurance is bad financial behavior, as it is the poor who
suffer on account of such bad product design. There is, therefore, a need to emphasize
linking of microcredit with micro-insurance.

Linking micro-insurance with micro-finance makes good business sense. Further, as it helps
in bringing down the inherent risk cost of lending, the Committee feels that NABARD should
be regularly involved in issues relating to rural and micro insurance to leverage on its
experience of being a catalyst in the field of micro-credit.

Consumer Education, Marketing and Grievance Handling

The micro-insurance sector is unique in the sense that there is an ongoing challenge to
explain the concept and benefits to the insured. Creating awareness thru’ use of pictorial
posters, local folk arts and street theatres might be useful to explain the mechanisms of
insurance. Local community-based organizations could organize premium collections, as
they have better access to the local people. To make it more acceptable to the people,
micro-insurance products, apart from covering only risks, should also provide an
opportunity for providing long term savings (endowment).

IRDA’s Regulations on Micro-Insurance

Building on the recommendations of the consultative group, IRDA notified Micro-Insurance
Regulations on 10th November 2005 with the following key features to promote and
regulate micro-insurance products. The regulations focus on the direction, design and
delivery of the products:

 A tie-up between life and non life insurance players for integration of product to
address risks to the individual, his family, his assets and habitat,
 Monitoring product design through “file and use”,
 Breakthrough in distribution channels with inclusion of NGOs, SHGs, MFIs and PACS to
provide micro-insurance, with appropriate compensation for their services,
 Enlarged servicing activities entrusted to micro-insurance agents,
 Issue of policy documents in simple vernacular language.

Currently the IRDA regulations do not favor composite insurance (i.e., life and non-life
insurances by the same company) and also limit the agency tie-up to one life and one non-
life insurer. However, in recognition of the uniqueness of micro-insurance, these regulations
enable life and non-life companies to tie-up for offering a combined policy in rural areas.
Further, the IRDA has allowed insurers to issue policies with a maximum cover of Rs. 50,000
for general and life insurance under these regulations. The regulations have also eased the
norms for entry of agents relating to training and pre-recruitment examination. As an
attraction, remuneration to agents has also been leveled across the term of the policy.

Another striking feature of the regulation is the provision of extending coverage to the
family as a unit as against the system of insurance coverage to individual lives. The insurer
has to take IRDA’s prior approval for launching micro-insurance products through the “file
and use” mode. The maximum cover will be Rs. 30,000 per annum for a dwelling and
contents or livestock or tools or implements or other named assets or crop insurance
against all perils. For individual and group health insurance, the maximum cover is Rs.
30,000 per annum per individual. For personal accident policies the maximum Rs. 50,000
per annum and is open to 5-70 age group.

In case of life micro-insurance products, the cover amount for term insurance ranges
between Rs. 5,000-50,000 for a minimum term of five years and maximum of 15 years. The
entry age for this product is kept between18-60. Endowment insurance policy provides
cover for Rs. 5,000-30,000 for a minimum five years and maximum 15 years for people aged
between 18 and 60. Further, an insurer can collect the premium for both life and general
insurance components directly from the consumer or agents.

At the time of opening of the insurance sector, IRDA had decided that all insurers, including
the new entrants, should fulfill certain obligations to spread insurance in rural areas. Specific
regulations have been issued prescribing targets in terms of quantum of policies to be
written in the rural sector consistent with the years of their operations and also certain
quantified target for coverage of lives in the social sector. With a view to encouraging the
insurers to meet these obligations and give a fillip to micro-insurance products, IRDA also
decided that all micro-insurance products may be reckoned for the purpose of fulfillment of
the social obligation and where such policy are issued in rural area they could also be
reckoned for rural sector obligation. IRDA has also proposed to benchmark the above
obligations with reference to quantified limits of sums assured under micro-insurance
policies. The above approach would ensure the faster development of the micro-insurance
market and take the insurance penetration to rural areas.

Social Security Schemes of Government of India

In order to provide insurance and social security coverage to the disadvantaged section of
society, the following schemes are being implemented:

a. Pradhan Mantri Suraksha Bima Yozna

b. Pradhan Mantri Jeevan Jyoti Bima Yozna
c. Atal Pension Yozna

The details of these scheme are as under :

Pradhan Mantri Suraksha Bima Yozna

Introduction
The scheme will be a one year cover, renewable from year to year, Accident Insurance
Scheme offering accidental death and disability cover for death or disability on account of
an accident. The scheme would be offered / administered through Public Sector General
Insurance Companies (PSGICs) and other General Insurance companies willing to offer the
product on similar terms with necessary approvals and tie up with Banks for this purpose.
Participating banks will be free to engage any such insurance company for implementing the
scheme for their subscribers.

Scope of coverage:
All savings bank account holders in the age 18 to 70 years in participating banks will be
entitled to join. In case of multiple saving bank accounts held by an individual in one or
different banks, the person would be eligible to join the scheme through one savings bank
account only. Aadhaar would be the primary KYC for the bank account.

Enrollment Modality / Period:

The cover shall be for the one year period stretching from 1st June to 31st May for which
option to join / pay by auto-debit from the designated savings bank account on the
prescribed forms will be required to be given by 31st May of every year, extendable up to
31st August 2015 in the initial year. Initially on launch, the period for joining may be
extended by Govt. of India for another three months, i.e. up to 30th of November, 2015.
Joining subsequently on payment of full annual premium may be possible on specified
terms. However, applicants may give an indefinite / longer option for enrolment / auto-
debit, subject to continuation of the scheme with terms as may be revised on the basis of
past experience. Individuals who exit the scheme at any point may re-join the scheme in
future years through the above modality. New entrants into the eligible category from year
to year or currently eligible individuals who did not join earlier shall be able to join in future
years while the scheme is continuing.

Benefits: As per the following table:

 Table of Benefits Sum
Insured
A Death Rs. 2 Lakh
B Total and irrecoverable loss of both eyes or loss of use of Rs. 2 Lakh
both hands or feet or loss of sight of one eye and loss of
use of hand or foot
c Total and irrecoverable loss of sight of one eye or loss of Rs. 1 Lakh
use of one hand or foot

Premium:
Rs.12/- per annum per member. The premium will be deducted from the account holder’s
savings bank account through ‘auto debit’ facility in one installment on or before 1st June of
each annual coverage period under the scheme. However, in cases where auto debit takes
place after 1st June, the cover shall commence from the first day of the month following the
auto debit.
The premium would be reviewed based on annual claims experience. However, barring
unforeseen adverse outcomes of extreme nature, efforts would be made to ensure that
there is no upward revision of premium in the first three years.

Eligibility Conditions:
The savings bank account holders of the participating banks aged between 18 years
(completed) and 70 years (age nearer birthday) who give their consent to join / enable auto-
debit, as per the above modality, will be enrolled into the scheme.

Master Policy Holder: Participating Bank will be the Master policy holder on behalf of the
participating subscribers. A simple and subscriber friendly administration & claim settlement
process shall be finalized by the respective general insurance company in consultation with
the participating Banks.

Termination of cover: The accident cover for the member shall terminate on any of the
following events and no benefit will be payable there under:

1) On attaining age 70 years (age nearest birth day).

2) Closure of account with the Bank or insufficiency of balance to keep the insurance in
force.
3) In case a member is covered through more than one account and premium is received by
the Insurance Company inadvertently, insurance cover will be restricted to one only and the
premium shall be liable to be forfeited.
4) If the insurance cover is ceased due to any technical reasons such as insufficient balance
on due date or due to any administrative issues, the same can be reinstated on receipt of
full annual premium, subject to conditions that may be laid down. During this period, the
risk cover will be suspended and reinstatement of risk cover will be at the sole discretion of
Insurance Company.
5) Participating banks will deduct the premium amount in the same month when the auto
debit option is given, preferably in May of every year, and remit the amount due to the
Insurance Company in that month itself.
Administration:
The scheme, subject to the above, will be administered as per the standard procedure
stipulated by the Insurance Company. The data flow process and data proforma will be
provided separately. It will be the responsibility of the participating bank to recover the
appropriate annual premium from the account holders within the prescribed period
through ‘auto-debit’ Process.

Enrollment form / Auto-debit authorization in the prescribed proforma shall be obtained

and retained by the participating bank. In case of claim, the Insurance Company may seek
submission of the same. Insurance Company reserves the right to call for these documents
at any point of time. The acknowledgement slip may be made into an acknowledgement
slip-cum-certificate of insurance. The experience of the scheme will be monitored on yearly
basis for re-calibration etc., as may be necessary.

Appropriation of Premium:
1) Insurance Premium to Insurance Company: Rs.10/- per annum per member
2) Reimbursement of Expenses to BC/Micro/Corporate/Agent: Rs.1/- per annum per
member
3) Reimbursement of Administrative expenses to participating Bank: Rs.1/- per annum per
member

The proposed date of commencement of the scheme will be 1st June 2015.The next Annual
renewal date shall be each successive 1st of June in subsequent years.
The scheme is liable to be discontinued prior to commencement of a new future renewal
date if circumstances so require.

Pradhan Mantri Jeevan Jyoti Bima Yozna

Introduction
The scheme will be a one year cover, renewable from year to year, Insurance Scheme
offering life insurance cover for death due to any reason. The scheme would be offered /
administered through LIC and other Life Insurance companies willing to offer the product on
similar terms with necessary approvals and tie ups with Banks for this purpose. Participating
banks will be free to engage any such life insurance company for implementing the scheme
for their subscribers.

Scope of coverage:
All savings bank account holders in the age 18 to 50 years in participating banks will be
entitled to join. In case of multiple saving bank accounts held by an individual in one or
different banks, the person would be eligible to join the scheme through one savings bank
account only. Aadhaar would be the primary KYC for the bank account.

Enrolment period:
Initially on launch for the cover period 1st June 2015 to 31st May 2016, subscribers will be
required to enroll and give their auto-debit consent by 31st May 2015. Late enrollment for
prospective cover will be possible up to 31st August 2015, which may be extended by Govt.
of India for another three months, i.e. up to 30th of November, 2015. Those joining
subsequently may be able to do so with payment of full annual premium for prospective
cover, with submission of a self-certificate of good health in the prescribed proforma.

Enrolment Modality:
The cover shall be for the one year period stretching from 1st June to 31st May for which
option to join / pay by auto-debit from the designated savings bank account on the
prescribed forms will be required to be given by 31st May of every year, with the exception
as above for the initial year. Delayed enrollment with payment of full annual premium for
prospective cover may be possible with submission of a self-certificate of good health.
Individuals who exit the scheme at any point may re-join the scheme in future years by
submitting a declaration of good health in the prescribed proforma. In future years, new
entrants into the eligible category or currently eligible individuals who did not join earlier or
discontinued their subscription shall be able to join while the scheme is continuing, subject
to submission of self-certificate of good health.

Benefits:
Rs.2 lakhs is payable on member’s death due to any reason

Premium:
Rs.330/- per annum per member. The premium will be deducted from the account holder’s
savings bank account through ‘auto debit’ facility in one installment, as per the option given,
on or before 31st May of each annual coverage period under the scheme. Delayed
enrollment for prospective cover after 31st May will be possible with full payment of annual
premium and submission of a self-certificate of good health. The premium would be
reviewed based on annual claims experience. However, barring unforeseen adverse
outcomes of extreme nature, efforts would be made to ensure that there is no upward
revision of premium in the first three years.

Eligibility Conditions:
a) The savings bank account holders of the participating banks aged between 18 years
(completed) and 50 years (age nearer birthday) who give their consent to join / enable auto-
debit, as per the above modality, will be enrolled into the scheme.

b) Individuals who join after the initial enrollment period extending up to 31st August 2015
or 30th November 2015, as the case may be, will be required to give a self-certification of
good health and that he / she does not suffer from any of the critical illnesses as mentioned
in the applicable Consent cum Declaration form as on date of enrollment or earlier.

Master Policy Holder:

Participating Banks will be the Master policy holders. A simple and subscriber friendly
administration & claim settlement process shall be finalized by LIC / other insurance
company in consultation with the participating bank.

Termination of assurance:
The assurance on the life of the member shall terminate on any of the following events and
no benefit will become payable there under:

1) On attaining age 55 years (age near birth day) subject to annual renewal up to that date
(entry, however, will not be possible beyond the age of 50 years).
2) Closure of account with the Bank or insufficiency of balance to keep the insurance in
force.
3) In case a member is covered under PMJJBY with LIC of India / other company through
more than one account and premium is received by LIC / other company inadvertently,
insurance cover will be restricted to Rs. 2 Lakh and the premium shall be liable to be
forfeited.
4) If the insurance cover is ceased due to any technical reasons such as insufficient balance
on due date or due to any administrative issues, the same can be reinstated on receipt of
full annual premium and a satisfactory statement of good health.
5) Participating Banks shall remit the premium to insurance companies in case of regular
enrolment on or before 30th of June every year and in other cases in the same month when
received.

Administration:
The scheme, subject to the above, will be administered by the LIC P&GS Units / other
insurance company setups. The data flow process and data proforma will be informed
separately. It will be the responsibility of the participating bank to recover the appropriate
annual premium in one installment, as per the option, from the account holders on or
before the due date through ‘auto-debit’ process.
Members may also give one-time mandate for auto-debit every year till the scheme is in
force.

Enrollment form / Auto-debit authorization / Consent cum Declaration form in the

prescribed proforma shall be obtained and retained by the participating bank. In case of
claim, LIC / insurance company may seek submission of the same. LIC / Insurance Company
reserves the right to call for these documents at any point of time.

The acknowledgement slip may be made into an acknowledgement slip-cum-certificate of

insurance. The experience of the scheme will be monitored on yearly basis for re-calibration
etc., as may be necessary.

Appropriation of Premium:
1) Insurance Premium to LIC / insurance company: Rs.289/- per annum per member
2) Reimbursement of Expenses to BC/Micro/Corporate/Agent: Rs.30/- per annum per
member
3) Reimbursement of Administrative expenses to participating Bank: Rs.11/- per annum per
member

The proposed date of commencement of the scheme will be 1st June 2015.The next Annual
renewal date shall be each successive 1st of June in subsequent years. The scheme is liable
to be discontinued prior to commencement of a new future renewal date if circumstances
so require.
 Atal Pension Yozna

Introduction
The Government of India is extremely concerned about the old age income security of the
working poor and is focused on encouraging and enabling them to join the National Pension
System (NPS). To address the longevity risks among the workers in unorganized sector and
to encourage the workers in unorganized sector to voluntarily save for their retirement,
who constitute 88% of the total labour force of 47.29 crore as per the 66th Round of NSSO
Survey of 2011-12, but do not have any formal pension provision, the Government had
started the Swavalamban Scheme in 2010-11. However, coverage under Swavalamban
Scheme is inadequate mainly due to lack of guaranteed pension benefits at the age of 60.

The Government announced the introduction of universal social security schemes in the
Insurance and Pension sectors for all Indians, specially the poor and the under-privileged, in
the Budget for the year 2015-16. Therefore, it has been announced that the Government
will launch the Atal Pension Yojana (APY), which will provide a defined pension, depending
on the contribution, and its period. The APY will be focused on all citizens in the unorganized
sector, who join the National Pension System (NPS) administered by the Pension Fund
Regulatory and Development Authority (PFRDA). Under the APY, the subscribers would
receive the fixed minimum pension of Rs. 1000 per month, Rs. 2000 per month, Rs. 3000 per
month, Rs. 4000 per month, Rs. 5000 per month, at the age of 60 years, depending on their
contributions, which itself would be based on the age of joining the APY. The minimum age
of joining APY is 18 years and maximum age is 40 years. Therefore, minimum period of
contribution by any subscriber under APY would be 20 years or more. The benefit of
guaranteed minimum pension would be guaranteed by the Government. The APY would be
introduced from 1st June, 2015.

Benefit of APY
The Guaranteed minimum pension for the subscriber ranging between Rs. 1000 to Rs. 5000
would be available, if he joins and contributes between the age of 18 years and 40 years.
The contribution levels would vary and would be low if subscriber joins early and increase if
he joins late.

The benefit of minimum pension under Atal Pension Yojana would be guaranteed by the
Government in the sense that if the actual realized returns on the pension contributions are
less than the assumed returns, for minimum guaranteed pension, over the period of
contribution, such shortfall shall be funded by the Government. On the other hand, if the
actual returns on the pension contributions are higher than the assumed returns for
minimum guaranteed pension, over the period of contribution, such excess shall be credited
to the subscriber’s account, resulting in enhanced scheme benefits to the subscribers.

Eligibility for APY

Atal Pension Yojana (APY) is open to all bank account holders. The Central Government
would also co-contribute 50% of the total contribution or Rs. 1000 per annum, whichever is
lower, to each eligible subscriber account, for a period of 5 years, i.e., from Financial Year
2015-16 to 2019-20, who join the NPS before 31st December, 2015 and who are not
members of any statutory social security scheme and who are not income tax payers.
However, the scheme will continue after this date but Government Co-contribution will not
be available.

The Government co-contribution is payable to eligible PRANs by PFRDA after receiving the
confirmation from Central Record Keeping Agency at such periodicity as may be decided by
PFRDA.

Age of joining and contribution period

The minimum age of joining APY is 18 years and maximum age is 40 years. The age of exit
and start of pension would be 60 years. Therefore, minimum period of contribution by the
subscriber under APY would be 20 years or more.

Focus of APY
Mainly targeted at unorganized sector workers.

Enrolment and Subscriber Payment

All bank account holders under the eligible category may join APY with auto-debit facility to
accounts, leading to reduction in contribution collection charges. The subscribers should
keep the required balance in their savings bank accounts on the stipulated due dates to
avoid any late payment penalty. Due dates for monthly contribution payment is arrived
based on the deposit of first contribution amount. In case of repeated defaults for specified
period, the account is liable for foreclosure and the GoI co-contributions, if any shall be
forfeited. Also any false declaration about his/her eligibility for benefits under this scheme
for whatsoever reason, the entire government contribution shall be forfeited along with the
penal interest. For enrolment, Aadhaar would be the primary KYC document for
identification of beneficiaries, spouse and nominees to avoid pension rights and entitlement
related disputes in the long-term. The subscribers are required to opt for a monthly pension
from Rs. 1000 - Rs. 5000 and ensure payment of stipulated monthly contribution regularly.
The subscribers can opt to decrease or increase pension amount during the course of
accumulation phase, as per the available monthly pension amounts. However, the switching
option shall be provided once in year during the month of April. Each subscriber will be
provided with an acknowledgement slip after joining APY which would invariably record the
guaranteed pension amount, due date of contribution payment, PRAN etc.

Enrolment agencies
All Points of Presence (Service Providers) and Aggregators under Swavalamban Scheme
would enroll subscribers through architecture of National Pension System. The banks, as
POP or aggregators, may employ Business Correspondents (BCs) / existing non-banking
aggregators, Micro Finance Institutions (MFIs) as enablers for operational activities. The
banks would be paid an incentive for mobilizing each subscriber account under APY. Further,
the banks may share the following incentives, received by them from the Government, with
the BCs/MFIs/Non-Bank Aggregators in the ratio 50:50.

(i) Per capita incentive @ Rs. 100

(ii) Incentive payable for promotion and development of APY
 No. Number of subscribers Incentives for promotional
under APY with each Bank efforts (only for new
accounts opened during
the year)
1. Less than 1 lakh Rs. 20/-
2. More than 1 lakh and up to 3 lakh Rs. 30/-
3. More than 3 lakh and up to 5 lakh Rs. 40/-
4. More than 5 lakh Rs. 50/-

6.9.3.8. Operational Framework of APY

It is Government of India Scheme, which is administered by the Pension Fund Regulatory
and Development Authority. The Institutional Architecture of NPS would be utilized to enroll
subscribers under APY. The offer document of APY including the account opening form
would be formulated by PFRDA.

6.9.3.9. Funding of APY

Government would provide (i) fixed pension guarantee for the subscribers; (ii) would co-
contribute 50% of the total contribution or Rs. 1000 per annum, whichever is lower, to
eligible subscribers; and (iii) would also reimburse the promotional and development
activities including incentive to the contribution collection agencies to encourage people to
join the APY.

6.9.3.10. Migration of existing subscribers of Swavalamban Scheme to APY

The existing Swavalamban subscriber, if eligible, may be automatically migrated to APY with
an option to opt out. However, the benefit of five years of government Co-contribution
under APY would not exceed 5 years for all subscribers. This would imply that if, as a
Swavalamban beneficiary, he has received the benefit of government Co-Contribution of 1
year, then the Government co-contribution under APY would be available only 4 years and
so on. Existing Swavalamban beneficiaries opting out from the proposed APY will be given
Government co-contribution till 2016-17, if eligible, and the NPS Swavalamban continued till
such people attained the age of exit under that scheme.

The existing Swavalamban subscribers between 18-40 years will be automatically migrated
to APY. For seamless migration to the new scheme, the associated aggregator will facilitate
those subscribers for completing the process of migration. Those subscribers may also
approach the nearest authorized bank branch for shifting their Swavalamban account into
APY with PRAN details.

The Swavalamban subscribers who are beyond the age of 40 and do not wish to continue
may opt out the Swavalamban scheme by complete withdrawal of entire amount in lump
sum, or may prefer to continue till 60 years to be eligible for annuities there under.

Penalty for default

Under APY, the individual subscribers shall have an option to make the contribution on a
monthly basis. Banks are required to collect additional amount for delayed payments, such
amount will vary from minimum Rs. 1 per month to Rs 10/- per month as shown below:

 Rs. 1 per month for contribution up to Rs. 100 per month.

 Rs. 2 per month for contribution up to Rs. 101 to 500/- per month.
 Rs. 5 per month for contribution between Rs 501/- to 1000/- per month.
 Rs. 10 per month for contribution beyond Rs 1001/- per month.

The fixed amount of interest/penalty will remain as part of the pension corpus of the
subscriber.

Discontinuation of payments of contribution amount shall lead to following:

After 6 months account will be frozen.

 After 12 months account will be deactivated.
 After 24 months account will be closed.

Operation of additional amount for delayed payments

APY module will raise demand on the due date and continue to raise demand till the
amount is recovered from the subscriber’s account. The due date for recovery of monthly
contribution may be treated as the first day /or any other day during the calendar month for
each subscriber. Bank can recover amount any day till the last day of the month. It will imply
that contribution are recovered as and when funds are available any point during the
month. Monthly contribution will be recovered on FIFO basis- earliest due instalment will
recovered first along with the fixed amount of charges as mentioned above. More than one
monthly contribution can be recovered in month subject to availability of the funds.
Monthly contribution will be recovered along with the monthly fixed due amount, if any. In
all cases, the contribution is to be recovered along with the fixed charges. This will be banks’
internal process. The due amount will be recovered as and when funds are available in the
account.

Investment of the contributions under APY

The amount collected under APY are managed by Pension Funds appointed by PFRDA as per
the investment pattern specified by the Government. The subscriber has no option to
choose either the investment pattern or Pension Fund.

Continuous Information Alerts to Subscribers

Periodical information to the subscribers regarding balance in the account, contribution
credits etc. will be intimated to APY subscribers by way of SMS alerts. The subscribers will
have the option to change the non – financial details like nominee’s name, address, phone
number etc whenever required.

All subscribers under APY remain connected on their mobile so that timely SMS alerts can
be provided to them at the time of making their subscription, auto-debit of their accounts
and the balance in their accounts.
Exit and pension payment
Upon completion of 60 years, the subscribers will submit the request to the associated bank
for drawing the guaranteed monthly pension. Exit before 60 years of age is not permitted,
however, it is permitted only in exceptional circumstances, i.e., in the event of the death of
beneficiary or terminal disease.

Age of Joining, Contribution Levels, Fixed Monthly Pension and Return of Corpus to the
nominee of subscribers
The table of contribution levels, fixed minimum monthly pension to subscribers and his
spouse and return of corpus to nominees of subscribers and the contribution period is given
below. For example, to get a fixed monthly pension between Rs. 1,000 per month and Rs.
5,000 per month, the subscriber has to contribute on monthly basis between Rs. 42 and Rs.
210, if he joins at the age of 18 years. For the same fixed pension levels, the contribution
would range between Rs. 291 and Rs. 454, if the subscriber joins at the age of 40 years.

Table of contribution levels, fixed monthly pension of Rs. 1,000 per month to subscribers
and his spouse and return of corpus to nominees of subscribers and the contribution
period under Atal Pension Yojana

Age of Year of Indicative Monthly Pension Indicative Return of

joining contribution monthly to the subscribers Corpus to the nominee
contributio and his spouse (in of the subscribers (in
n Rs.) Rs.)
(Rs)
18 42 42 1,000 1.7 lakh
20 40 50 1,000 1.7 lakh
25 35 76 1,000 1.7 lakh
30 30 116 1,000 1.7 lakh
35 25 181 1,000 1.7 lakh
40 20 291 1,000 1.7 lakh

Table of contribution levels, fixed monthly pension of Rs. 2,000 per month to subscribers
and his spouse and return of corpus to nominees of subscribers and the contribution
period under Atal Pension Yojana

Age of Year of Indicative Monthly Pension to Indicative Return

joining contribution monthly the subscribers and of Corpus to the
contribution his spouse (in Rs.) nominee of the
(Rs) subscribers (in Rs.)
18 42 84 2,000 3.4 lakh
20 40 100 2,000 3.4 lakh
25 35 151 2,000 3.4 lakh
30 30 231 2,000 3.4 lakh
35 25 362 2,000 3.4 lakh
40 20 582 2,000 3.4 lakh
Table of contribution levels, fixed monthly pension of Rs. 3,000 per month to subscribers
and his spouse and return of corpus to nominees of subscribers and the contribution
period under Atal Pension Yojana

Age of Year of Indicative Monthly Pension to Indicative Return of

joining contribution monthly the subscribers and Corpus to the
contribution his spouse (in Rs.) nominee of the
(Rs) subscribers (in Rs.)
18 42 126 3,000 5.1 lakh
20 40 150 3,000 5.1 lakh
25 35 226 3,000 5.1 lakh
30 30 347 3,000 5.1 lakh
35 25 543 3,000 5.1 lakh
40 20 873 3,000 5.1 lakh

Table of contribution levels, fixed monthly pension of Rs. 4,000 per month to subscribers
and his spouse and return of corpus to nominees of subscribers and the contribution
period under Atal Pension Yojana

Age of Year of Indicative Monthly Pension to Indicative Return of

joining contribution monthly the subscribers and Corpus to the
contribution his spouse (in Rs.) nominee of the
(Rs) subscribers (in Rs.)
18 42 168 4,000 6.8 lakh
20 40 198 4,000 6.8 lakh
25 35 301 4,000 6.8 lakh
30 30 462 4,000 6.8 lakh
35 25 722 4,000 6.8 lakh
40 20 1164 4,000 6.8 lakh

Table of contribution levels, fixed monthly pension of Rs. 5,000 per month to subscribers
and his spouse and return of corpus to nominees of subscribers and the contribution
period under Atal Pension Yojana

Age of Year of Indicative Monthly Pension to Indicative Return of

joining contribution monthly the subscribers and Corpus to the nominee
contribution his spouse (in Rs.) of the subscribers (in
(Rs) Rs.)
18 42 210 5,000 8.5 lakh
20 40 248 5,000 8.5 lakh
25 35 376 5,000 8.5 lakh
30 30 577 5,000 8.5 lakh
35 25 902 5,000 8.5 lakh
40 20 1454 5,000 8.5 lakh

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