Pension scheme trial today as government plans Feb 15 launch

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Image for representation.(File photo)

Prime Minister Narendra Modi will likely launch the government’s new pension scheme for unorganised sector workers on February 15 and a trial run of the software of the new scheme is slated for Monday, a top government official said on condition of anonymity.

The scheme will be administered by the Life Insurance Corporation of India, the official said, adding that he and other officials are awaiting a confirmation of the launch date from the Prime Minister’s Office.

The new scheme promises marginally higher benefits compared to its predecessor, the Atal Pension Yojana, but that may not result in the informal sector workers making a dash for it in substantially higher numbers, analysts say.

The Atal Pension Yojana, launched in June 2015, had a target of 20 million subscribers by the end of 2015. By mid-2018, it had 11 million subscribers, according to official data.

India’s so-called informal sector employs about 420 million people, according to Census 2011, and accounts for half of the country’s gross domestic product (GDP).

Unorganised sector jobs don’t come with any form of social security, such as retirement benefits. The much smaller formal economy employs only 50 million.

The Pradhan Mantri Shram Yogi Maandhan (PMSYM) announced in the interim budget promises unorganised sector workers earning up to Rs 15,000 a month a monthly pension of Rs 3,000 after they attain the age of 60. Workers between the ages of 18 and 40 years qualify for the scheme.

In his speech, finance minister Piyush Goyal said the scheme will cater to 100 million people.

On the face, this works out to be a better deal compared to the older scheme because a worker will now have to shell out less for exactly similar payouts, or benefits.

A worker who joins the new scheme at the age of 18 will have to contribute Rs 55 a month and a matching amount will be contributed by the government. Those above 29 years will have to contribute Rs 100 every month (to make up for late entry, which reduces the total lifetime contribution).

As an illustrative case, economist Amitabh Kundu says that earlier for a Rs 1,000 monthly pension, a worker entering the scheme at the age of 18 had to contribute Rs 42 every month.

So, for a Rs 3,000 pension a month (which is what the new scheme offers), a worker would have had to deposit Rs 126 (Rs 42 a month multiplied by 3).

But analysts say some of the “disincentives” for poor workers in the erstwhile scheme still show up in the new scheme.

“Yes, the government is giving something for sure. I am not criticising the government on that count at all. But what is the interest rate being offered? Will it be an incentive enough?” asked Kundu, who has devised many welfare schemes. Kundu has been a member of the National Statistical Commission, evaluated minority welfare policies, headed a panel on affordable housing, and was most recently tasked with evaluating Swachh Bharat Abhiyaan (rural), the cleanliness-cum-sanitation programme launched by Modi in 2014.

In the earlier scheme, the interest rate — or rate of return — was about 7.5%. In the new scheme, the rate of return will be determined by the Insurance Regulatory Development Authority, the official cited in the first instance said.

“So, the crux is that for the formal sector, if the interest rate on provident fund is about 8.55%, at least give that much in the case of informal workers too to make the scheme attractive,” Kundu said.

“Even the threshold of Rs 15,000 [employees earning more don’t qualify for the new scheme] is problematic to me,” said KR Shyam Sundar of XLRI, Jamshedpur.

Those earning Rs 15,000 fall in the lower middle-class. But those earning much less, say Rs 3000 a month, will not be keen on parting with anything from their meagre incomes. Their share of contribution should be waived off to expand enrolment, Sundar said.

Like in the old scheme, anyone older than 40 is ineligible for the new scheme. The share of the workforce above 40 years is over 30% as per the 2011 Census. Extrapolating this, 30% of 420 million informal workforce comes to 126 million people.

A second government official said that when seen in conjunction with other welfare programmers, the National Democratic Alliance (NDA) government has come up with a comprehensive safety net for the poor.

He explained that the poor could also count on the Ayushman Bharat for health protection, PM Jeevan Jyothi Bima Yojana, a completely free life insurance scheme, and also PM Suraksha Yojana for accidental death. “So, this is complete package of social security for the poor.”