PENSION SECTOR REFORMS

Pension has been the integral part of government jobs in India. Pension serves two important socio-economic objectives—

(i) It facilitates the flow of long-term savings for development, i.e., nation- building; and

(ii) Also helps establish a credible and sustainable social security system in the country.

The New Pension System (NPS) was introduced for the new recruits who join government service on or after 1 January, 2004. Although the NPS is perhaps one of the cheapest financial products available in the country, in order to make it affordable for the economically disadvantaged, the government in September 2010 introduced a lower cost version, known as Swavalamban Scheme, which enables groups of people to join the NPS at a substantially reduced cost. As per existing scheme under NPS, Swavalamban could be availed either in ‘unorganised sector’ or in ‘NPS Lite’. NPS Lite is a model specifically designed to bring NPS within easy reach of the economically disadvantaged sections of the society —it is extremely affordable and viable due to its optimised functionalities, available at reduced charges. Under the Swavalamban scheme, the government provides subsidy to each NPS account holder and the scheme has been extended until 2016–17.

A customised version of the core NPS model, known as the NPS Corporate Sector Model was introduced from December 2011 to enable ‘organised- sector’ entities to move their existing and prospective employees to the NPS under its Corporate Model. All pubic sector banks have been asked to provide a link on their website to enable individual subscribers to open online NPS accounts.

As per the Economic Survey 2012–13, the pension reforms in India have generated widespread interest internationally but before universal inclusion of poorer sections of Indian society into the pension network is a reality, the economy needs to solve the following major challenges :

(i) Lower levels of financial literacy, particularly among workers in the unorganised sector;

(ii) Non-availability of even moderate surplus;

(iii) Lukewarm response so far from most of the state/UT governments to a co-contributory Swavalamban Scheme; and

(iv) Lack of awareness, on the supply side, about the NPS and of access points for people to open their accounts individually have been major inhibiting factors.

During 2015–16, the government launched a new pension scheme, the APY (Atal Pension Yojana). The scheme provides a defined pension, depending on the contribution and its period. The subscribers to it will receive a minimum pension of Rs. 1,000, 2,000, 3,000, 4,000 or 5,000 per month, from the age of 60 years, depending on their contributions, which are themselves based on the age of joining the scheme.

The scheme is open to all bank account holders. The central government co-contributes 50 per cent of the total contribution subject to a maximum of Rs. 1,000 per annum, to each eligible subscriber’s account, for a period of five years (from 2015–16 to 2019–20), who joined the APY between 1 June 2015 and 31March 2016 and who is not a member of any statutory social security scheme and is not an income tax payer.