Universal Pension Scheme: New EPFO scheme may cover unorganised workers
The Employees’ Provident Fund Organisation (EPFO) may extend its pension scheme to workers from both organised and unorganised sectors, irrespective of their monthly income, the Financial Express reported.
The proposed scheme is likely to be based on individual contribution. The government, through this scheme, seeks to ensure a minimum pension of Rs 3,000 a month after reaching 60 years of age to each worker.
The new scheme, likely to be called Universal Pension Scheme (UPS), intends to fix the existing lacunas in the current Employees’ Pension Scheme (EPS), like no coverage for employees earning above Rs 15,000 a month, a meagre pension amount for the existing subscribers. Currently, the EPS does not cover sections of workers within the organised, unorganised/self-employed workforce.
If the scheme gets the required approval, the unorganised sector workers will have to put in a fixed amount with a flexibility of making voluntary payments.
The new universal pension scheme also plans to include superannuation pension, widow pension, children pension and disability pension. However, It may increase the minimum qualifying period of service for pension benefit to 15 years from the existing period of 10 years. Also, the new scheme will provide pension to the family if a member dies before the age of 60 years.
“The minimum accumulation of approx. Rs 5.4 lakh is required for a minimum of Rs 3,000 pension per month. Members can choose to contribute more voluntarily and accumulate significantly larger amount for a higher pension,” an ad-hoc committee, set up by the Central Board of Trustees (CBT), said.
At present, for workers earning up to Rs 15,000 a month in organisations with more than 20 employees contribution to EPF is mandatory. An individual employee is required to contribute 12 per cent of their basic salary into the EPF scheme. The employer too is required to contribute the same.
Currently, from the employers’ contribution, 8.33 per cent is deposited in the pension scheme subject to a cap of Rs 1,250 per month based on the salary cap of Rs 15,000 per month. This money goes into the pension pool without any extra interest. A monthly pension, derived from a set formula is paid post retirement to the subscriber.
Also, the organised sector workers will be required to contribute a certain percentage of wages (so that when wages grow, the contribution to the fund increases) under the new scheme.
Adding to this the new scheme is also likely to introduce an interface for seamless and easy switching between formal and informal employment.
“The final in the form of a pension is contingent on the earnings on the fund during the accumulation phase. The committee discussed that since the pension funds would be locked in for the long-term, a lightly different investment strategy would be required that what is being followed for a provident fund where the investment horizon is much shorter,” the EPFO said.
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