To bridge the gap between increased life expectancy and lack of income support in old age, the government is considering launching a mission to provide credible retirement benefits to nearly 38 crore of hitherto uncovered labor in the country.
Currently, about 12 crore workers, most of whom are in the organized sector, enjoy some sort of retirement benefit under one 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 several other pension funds.
“Interdepartmental consultations are taking place about how to achieve saturation of the pension/old-age coverage. The idea is that everyone should be in one of the programs,” an official told FE. The budgetary impact of the mission, including incentives to employees and employers, and the administrative set-up, should be assessed, taking into account the available resources. The savings boost from much larger pension coverage for employees in the country could also boost investment, the officials who started the discussions say.
India has an estimated workforce of about 50 crore, ranging in age from 16 to 60 years.
“It won’t help to provide tax incentives without people being aware of the incentives. There is a need to launch a serious campaign to wake up these 38 crore people who need them to save for retirement,” said Gautam Bhardwaj, co-founder of pinBox, a global pension tech committed to digital inclusion of micro-pensions in Asia and Africa.
“If the government does that, you could be in a situation where you have $500 billion in additional long-term savings in India over the next 10 years. These new savings will also benefit the economy and markets, in addition to boosting infrastructure investment and general economic development.”
Preliminary discussions suggest the government is excited about a mission mode similar to ‘Pradhan Mantri Jan-Dhan Yojana (PMJDY), which extended the banking facility to low-income people, for universalization of pensions.
PMJDY has made financial inclusion a universal phenomenon and played a major role in providing relief to people through direct bank transfer of financial resources to parts of PMJDY account holders during Covid in 2020. Since its launch in August 2014, 43.7 crore- beneficiaries opened bank accounts so far a near saturation level.
Flexibility in premium payments and large out-of-pocket (OOP) healthcare areas are a stumbling block to expanding pension plan coverage, even though the necessary infrastructure is in place through the JAM trinity (Jan Dhan bank account, Aadhar identification number and mobile).
“It won’t help to provide tax incentives without people being aware of the incentives. A serious campaign needs to be launched to wake up these 38 crore people who need to save for retirement,” said Gautam Bhardwaj, co-founder of pinBox, a global pension tech dedicated to digital micro-retirement withdrawal in Asia and Africa. “If the government does that, you could be in a situation where you have $500 billion in additional long-term savings in India over the next 10 years. These new savings will also benefit the economy and markets, in addition to boosting infrastructure investment and general economic development.”
Bhardwaj said Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) should get a pension plan to create a more integrated and meaningful solution as health risks pose immediate risks. PMJAY, which provides annual health coverage of Rs 5 lakh/family to those below the poverty line, should be extended to all working populations for a small premium, Bhardwaj said. There is also a need to align savings much more with income by allowing people to save smaller amounts over several installments in a month rather than large amounts at once, he added.
The formalization of employment – jobs with essential social security – accelerated for several years until 2020-21. The government incentives to include employees under the EPF scheme have significantly expanded the fund’s membership base. The process has been delayed a bit since then due to the pandemic.
As recently reported by FE, new enrollments under the voluntary Pradhan Mantri Shram Yogi Maandhan scheme, which guarantees a monthly pension of Rs 3,000 from the age of 60 for domestic workers, rickshaw pullers and other low earners, has fallen rapidly. and may soon fall to nothing. As such, against the target of enrolling 10 crore people in five years from FY20, just over 45 lakh people have joined the heavily subsidized pension scheme until October 18 this year.
Atal Pension Yojana (APY) in NPS is a government-supported, voluntary scheme designed to provide income security for old age in the form of a minimum guaranteed pension (ranging from Rs 1,000-5,000/month), in proportion to individual contributions, even if it is market-based. It makes up 68% of the subscriber base below the fold of the NPS.
However, an income shortfall seems to lead to more and more employees leaving the scheme prematurely. While a record 79 lakh workers, mostly from the unorganized sector, joined the APY in FY21, 10 lakhs left the scheme in the year even as the pandemic wreaked havoc. The government may also need to consider some form of protection against temporary loss of income, analysts believe.
With longevity rising to 75-80 years for average Indians, more people need to be initiated into retirement products in innovative ways, such as automatic enrollment in schemes such as the NPS the moment they join an organization, PFRDA chairman Supratim Bandyopadhyay told to FE recently.