To bridge the disparity between higher life-expectancy and lack of income support in the old age, the government is considering launching a mission to provide credible retirement benefit cover to nearly 38 crore hitherto uncovered workforce in the country.
Currently, around 12 crore workers, the bulk of whom in the organised sector, enjoy some kind of retirement benefit under either of the following schemes: Employment Provident Fund (EPF), National Pension System (NPS), PM Shrarm Yogi Maandhan, Pradhan Mantri Kisan Maan-Dhan Yojana, Coal Mines Providend Fund, Assam Tea Plantation Provident Fund, Seamen Provident Fund, and various other superannuation funds.
“Inter-ministerial consultations are taking place on how to arrive at pension/retirement benefit cover saturation. The idea is everyone should be in one of the schemes,” an official told FE. The budgetary impact of the mission, which may include giving incentives to the workers and employers, and administrative set-ups, would need be assessed, keeping in view the funds availability. The savings boost to result from a much larger pension cover for workers in the country could also spur investments, the officials, who initiated the discussions, feel.
India has an estimated workforce of about 50 crore, aged 16 to 60 years.
“Providing fiscal incentives without people being aware of the incentives won’t help. There is a need to start a serious campaign to wake up these 38 crore people that they need to save for retirement,” said Gautam Bhardwaj, co-founder of pinBox, a global pensionTech committed to digital micro-pension inclusion in Asia and Africa.
“If the government does so, then you might end up in a situation where you have $500 billion of additional long-term savings over the next 10 years in India. These new savings will also benefit the economy and markets, besides boosting infrastructure investments and overall economic development.”
Preliminary discussions suggest that the government is keen on a mission mode drive similar to ‘Pradhan Mantri Jan-Dhan Yojana (PMJDY), which extended banking facility to low-income people, for universalisation of pension.
PMJDY has made financial inclusion a universal phenomenon and played a big role in giving succor to people through direct bank transfer of financial aids to sections of PMJDY account holders during Covid in 2020. Since its launch in August 2014, 43.7 crore beneficiaries have opened bank accounts so far, a near saturation level.
Flexibility in premium payments and large out of pocket (OOP) healthcare expanses acts as stumbling blocks for widening coverage of retirement schemes even though the necessary infrastructure is in place by way of JAM trinity (Jan Dhan bank account, Aadhar identification number and mobile).
“Providing fiscal incentives without people being aware of the incentives won’t help. There is a need to start a serious campaign to wake up these 38 crore people that they need to save for retirement,” said Gautam Bhardwaj, co-founder of pinBox, a global pensionTech committed to digital micro-pension inclusion in Asia and Africa. “If the government does so, then you might end up in a situation where you have $500 billion of additional long-term savings over the next 10 years in India. These new savings will also benefit the economy and markets, besides boosting infrastructure investments and overall economic development.”
Bhardwaj said Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) should be clubbed with a pension scheme to create a more integrated and meaningful solution as healthcare risks pose immediate risks. PMJAY, which provides annual health coverage of Rs 5 lakh/family to below poverty line people, should be extended to all working population for a small premium, Bhardwaj said. Also 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 rather than large lump sum amount, he added.
Formalisation of employment – jobs with essential social security cover– gathered pace for a few years till 2020-21. The incentives offered by the government for inclusion of workers under the EPF scheme have substantially expanded the fund’s subscription base. The process has since slowed a bit due to the pandemic.
As reported by FE recently, fresh enrolments under the voluntary Pradhan Mantri Shram Yogi Maandhan scheme that guarantees monthly pension of Rs 3,000 from the age of 60 years for domestic workers, rickshaw pullers and other low earners have been dipping fast and may soon be down to zilch. As such, against the target of enrolling 10 crore people in five years from FY20, just a little over 45 lakh people have joined the heavily subsidised pension scheme till October 18 this year
Atal Pension Yojana (APY) in NPS is a government-backed, voluntary scheme meant to provide old-age income security in the form of minimum assured pension (ranging from Rs 1,000-5,000/month), in proportion to individual contributions, even as it is market-linked. It forms 68% of the subscriber base under the fold of the NPS.
However, income deficiency seems to be forcing an increasing number of workers to leave the scheme prematurely. While a record 79 lakh workers, mostly from the unorganised-sector, joined the APY in FY21, even as the pandemic wreaked havoc, 10 lakh moved out of the scheme in the year. The government may also have to think of some sort of protection against temporary income loss, analysts reckon.
With longevity of life increasing to 75-80 years for average Indians, more people need to be initiated into pension products by innovative ways such as auto enrollment into schemes such as the NPS at the time of joining an organisation, PFRDA chairman Supratim Bandyopadhyay told FE recently.