Pension Succor Punch
The Rajya Sabha passed the Pension Fund Regulatory and Development Authority (PFRDA) Bill, ending a decade of political indecision by overcoming the ghosts of the Marxists and Mamata Banerjee and extending pension to citizens where only about 12% of the active workforce has any formal pension or social security plan.
As 55% of India’s population may be over 60 by 2050 and improved health care has increased longevity, the pension Bill couldn’t have been more timely. Focusing on the need to accumulate for one’s twilight years, the new pension regime which is in tune with the latest global fund management techniques, will prompt many to look beyond the short term pleasures heaped by a neo-liberal market and save for a comfortable life post-retirement.
The Pension Bill makes the PFRDA existing since 2003, a statutory authority, which was needed for responsible fund management. It provides pensioners with a wider choice to invest their funds depending on their risk appetite beginning with 50% investment in the stock market and 50% in debt funds up to the age of 35 years, to a 10% decrease in equity holdings every five years and similar increase in debt funds. So for instance at the age of 55 one would have 10 % investment in equity and 90% investment in debt funds. Presently there are 53 lakh NPS subscribers, including those from 26 states and a corpus of around Rs 35,000 crore.
The eligibility criteria would also be a blessing to workers given the unfair practices resorted to by most managements. Though Government servants were part of NPS since 2004, the organized and unorganized sector employees came voluntarily participate in the NPS from 2009. Now even EPFO subscribers can shift over to NPS, for productive pension fund management.
The government under the “Swavalamban Scheme” of Budget 2010-11 contributes Rs 1,000 to each eligible NPS subscriber who contributes a minimum of Rs. 1,000 and this pension account can be shifted across if one changes jobs. More importantly one gets to choose and switch fund managers and schemes to manage pension wealth and it is the only fund customized to one’s age. The NPS has benefits for both subscribers and employers, with the subscriber getting income tax benefits under newly added Section 80 CCD(2) and the employer under Section 36 I (IV) A for his contribution.
The NPS allows one to accumulate the corpus from the age of 18 for 40-odd years. There is minimal leakage since few withdrawals are allowed for consumption expenses but there is flexibility to withdraw for meeting expenses such as children’s marriages, housing, or draw the lump sum in a staggered manner till one is 70 years old.
The Pension Bill also come as a steroid for the sagging economy as it allows 26% stake FDI in the country’s pension sector, which will go to 49% as and when the insurance bill is passed in Parliament. This will give the government much needed funds to invest in infrastructure, where it is seeking $1 trillion investment till 2017.
Though this is yet another of UPA’s Santa Claus avatars in the run up to the 2014 General Election, it is a blessing in disguise since 12.8 lakh out of 35 lakh pensioners get ridiculous monthly pensions of less than Rs 500 (with some receiving as little as Rs 12), about 15 lakh get Rs 500 to Rs1,000 and 7.3 lakh get more than Rs 1,000. With the NPS the UPA has bitten the bullet and may provide a minimum monthly pension of Rs 1,000 by bearing the entire additional burden of Rs 539 crore, to increase its subsidy to 1.79 per cent of the wage from the current 1.16 per cent to guarantee minimum pension to each of the 50 million employees in the organized sector. The pension succor punch, as it were, may just help UPA over the line in the last bout of election punching.
