Over 1.2 billion, mostly young, non-salaried informal sector workers across Africa, Asia, Latin America and the island nations in the Caribbean and Pacific regions are excluded from formal pension arrangements.

With rapidly rising life expectancy, a breakdown of joint family support in old age, broad-based pension exclusion and negligible lifetime savings as a result of modest intermittent incomes, most of these individuals face the grim prospect of living in poverty for over two decades after they are too old to work. Women are especially vulnerable to old age poverty as they enjoy a relatively higher life expectancy than men, but have lower incomes in comparable occupations, face frequent employment interruptions, have lower control of their own incomes and financial decisions, and have modest access to banking and formal finance.

Without an urgent and effective policy, regulatory and business response to pension exclusion, poverty among the elderly in developing countries will rapidly emerge as the dominant cause of increased global poverty. The aggregate future fiscal cost for developing nations of providing a tax funded social pension of even $1 per day to their presently excluded citizens may be a staggering US$9 trillion. On the other hand, countries that succeed in achieving comprehensive coverage of contributions-led pension and insurance programs, will benefit from a huge surge in stable, long-term household savings that can help fuel economic growth, employment and infrastructure development.

To address this, UNCDF’s Pacific Financial Inclusion Programme (PFIP) identified an opportunity to extend the suite of financial services that targets low-income communities in the Pacific by including voluntary micro-savings and micro-pensions through existing national superannuation funds.

This month, #UNCDFExpertsChat spoke to Mr. Krishnan Narasimhan, PFIP Deputy Programme Manager on how to create appropriate, affordable and flexible micropension product offerings which better meet the needs of the target group to provide adequate funds for their retirement.

Krishnan has over two decades of domain experience in financial services covering insurance, mutual funds, equity and bonds, and investment management. He had served in senior managerial positions within financial institutions in India and other countries including positions such as Country Head of the life insurance company LICI in Fiji. He was instrumental in launching the first ever microinsurance product in the Pacific in 2011. His deep Pacific regional engagement with financial inclusion began in Fiji where he served as one of the founding members of the National Financial Inclusion Task Force in 2010 and chaired the Financial Literacy working group from 2010 to 2012.

Krishnan holds post graduate qualifications in Human Resources and Business Management (MBA). He also has International Post Graduate Certifications in Microfinance, Climate Change and Renewable Energy Finance from the prestigious Frankfurt School of Finance and Management. He has attended several global seminars, workshops and training programs on Micro insurance, Pensions, Risk management, Micro and SME Banking besides being a speaker/resource person at several international seminars and conventions.

#UNCDFExpertsChat: What is the development challenge you are trying to solve? How does the Pacific Financial Inclusion Programme (PFIP) solve that challenge?

Krishnan Narasimhan: Old age financial and social security is a problem in the Pacific, as is the case with most developing countries where the state does not provide adequate support. With nearly 80% of the adult population in the Pacific in the informal sector, they presently have no access to appropriate financial instruments that will help them in saving now for their twilight years.

PFIP is a Pacific-wide programme that has so far helped over 1.6 million low-income Pacific islanders gain access to financial services and financial education. It achieves these results by funding innovation with financial services and delivery channels, supporting policy and regulatory initiatives, and empowering consumers. We operate from the UNDP Pacific Office in Suva, Fiji with additional offices in Papua New Guinea, Samoa and Solomon Islands. The programme is jointly administered by the UN Capital Development Fund (UNCDF) and the United Nations Development Programme (UNDP) and receives funding from the Australian Government, the European Union and the New Zealand Government.

Through PFIP’s work with the superannuation funds in the region, we have developed innovative products that will provide micro pension to those in the informal sector through voluntary savings during the active working life of an individual and building a corpus. New channels and distribution partnerships define the approach in reaching these low-income segments. It is an important area contributing to human development where at present government action is either non-existent or limited.

#UNCDFExpertsChat: What is the last mile financing model of PFIP? How does it build public/private partnerships?

Krishnan Narasimhan: The superannuation fund providers are either from the public or private sector and are reengineering their business models with technical assistance from PFIP, investing in new technologies, adopting new business processes, designing innovative products, services and adding other resources including skilled staff with a view to increase their coverage of those in the informal sector.

The micro pension projects in the Solomon Islands and Fiji presently underway involve the use of digital payment channels, last mile distribution partnerships aimed at reaching remote and underserved areas and populations. Private commercial banks, investment funds, microfinance institutions, savings groups, post offices, Fintech service providers as well as the respective Central Banks and Governments are all partners in this initiative where PFIP/UNCDF technical and grant support is leveraging both private/public sector.

#UNCDFExpertsChat: How does PFIP support the achievement of the SDGs?

Krishnan Narasimhan: Greater access to financial services is a key enabler to many Sustainable Development Goals. PFIP’s three workstreams contribute to the 7 SDGs that relate to financial inclusion through the creation of an enabling environment for economic growth and broader development goals.

Through the work with the superannuation funds, we directly address old age poverty by providing pensions for those above age 55 in the informal economy, building partnerships between various stakeholders, facilitating domestic resource mobilization, utilizing new technology, and supporting household and personal health and well-being through provision of old age pensions, insurance and funeral covers.

#UNCDFExpertsChat: The SDGs have a strong focus on leaving no one behind. How does PFIP reach poor communities and under-served regions in LDCs? How does it make sure that it reaches women and vulnerable groups?

Krishnan Narasimhan: This informal sector voluntary savings and micro pension project with the National Provident funds in Fiji and Solomon Islands targets the most vulnerable sections of the society who are presently left out of the social security net. Solomon Islands is one of 47 world’s least developed countries (ranked 157 on the HDI).

Under the validation phase underway, 58% of the total clients reached are women with 65% of the total savings being contributed by women. All clients are from low income and vulnerable segments like market vendors, small holder farmers, fishermen, laborers etc.

#UNCDFExpertsChat: Can you give an example of how PFIP has made a difference to the lives of poor people and communities?

Krishnan Narasimhan: Hitherto the access to and usage of pension products was limited to those in the formal employed sector only. Those in the low-income segments, rural and remote communities, who were irregular income earners did not have appropriate products, services or channels to access services offering old age income and social protection.

This programme is directly benefiting these segments by allowing them a safe and easy way to save small amounts (as low as USD5 per month) to build a pension corpus over 10 or 15 years and there will be regular monthly pension pay out from age 55 onwards. The clients’ families also benefit from an insurance cover for the member and family pension for the household in the unfortunate event of death of the member.

#UNCDFExpertsChat: What are the lessons learned from PFIP’s implementation so far?

Krishnan Narasimhan: Those in the informal sector, rural and low-income populations have low levels of literacy and numeracy. Getting them to understand the need for financial security and protection for their old age has been a challenge. The business processes of the pension service providers also needed to be aligned to the needs of this new business segment, besides the investments by their organizations. There has been enthusiastic response during the pilot and we are now planning a full-fledged scale up early 2018. Important inputs from the operational feasibility, business/commercial viability and financial feasibility are being analyzed.

#UNCDFExpertsChat: What's the plan for scale up? What can we look forward to in the future of PFIP?

Krishnan Narasimhan: The scale up plans are now being prepared and will go to the Board of Solomon Islands National Provident Fund by end of September. It is expected that scale up will start in January 2018. For Fiji National Provident Fund the scale up plans are under discussions and will be decided once the validation phase currently underway ends by end of 2017.

#UNCDFExpertsChat: What's exciting about working in this space?

Krishnan Narasimhan: It is a new product added to the suite of PFIP supported interventions in the Pacific and leverages on our existing knowledge in the DFS space. It involves intervention at the financial innovation, policy and consumer empowerment work streams that are at the core of the programme. Innovation is the key driver of work in this area and hence exciting developments are underway. For example, a new product suited to the needs of the informal sector with flexible savings & withdrawal options was developed while also allocating a portion of the savings to the pension corpus. This involved use of human centered design in product prototyping, testing and validating. Then innovation around distribution channels and partnerships and experimenting with these provided a lot of excitement especially bringing together different stakeholders and businesses to partner together. Getting the commitment of the Executive management and Board of the superannuation funds, mobile operators, commercial banks, Post office to come onboard necessitated a lot of leg work, protracted negotiations and discussions, looking at policy and legal aspects, all very exciting indeed as this has unfolded a new chapter in pension and social inclusion in the Pacific region.

You can contact Krishnan Narasimhan, Deputy Programme Manager, at krishnan.narasimhan@uncdf.org.