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Why in news?

Interim Finance Minister Piyush Goyal, while presenting Budget 2019, announced the launch of a social security pension scheme for workers in the unorganised sector, called the ‘Pradhan Mantri Shram Yogi Mandhan’.

Highlights of Old Age in India

  • According to Population Census 2011 there are nearly 104 million elderly persons (aged 60 years or above) in India; 53 million females and 51 million males.
  • A report released by the United Nations Population Fund and HelpAge India suggests that the number of elderly persons is expected to grow to 173 million by 2026.
  • The Ministry of Social Justice and Empowerment develops and implements Acts, Policies and Programmes for welfare of Senior Citizens in collaboration with State Governments/ Union Territory Administrations to ensure that Senior Citizens may lead a secured, dignified and productive life.

Existing Pension Schemes in India

  • Retirement planning has become an essential part of one’s life owing to the increased life expectancy and cost of living.
  • Employees Provident Fund (EPF): EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The scheme is managed under the aegis of Employees’ Provident Fund Organisation (EPFO).
  • Under EPF scheme, an employee has to pay a certain contribution towards the scheme and an equal contribution is paid by the employer. The employee gets a lump sum amount including self and employer’s contribution with interest on both, on retirement.
  • As per the rules, in EPF, employee whose ‘pay’ is more than Rs. 15,000 per month at the time of joining, is not eligible and is called non-eligible employee. Employees drawing less than Rs 15000 per month have to mandatorily become member.
  • Public Provident Fund (PPF): It was introduced in India in 1968 with the objective to mobilize small saving in the form of an investment, coupled with a return on it.
  • It can also be called a savings-cum-tax savings investment vehicle that enables one to build a retirement corpus while saving on annual taxes. Anyone looking for a safe investment option to save taxes and earn guaranteed returns should open a PPF account.
  • National Pension System: National Pension Scheme (NPS), a government-sponsored pension scheme, was launched in January 2004 for government employees. It was opened to all sections in 2009.
  • The Government of India started the National Pension System under the Pension Fund Regulatory and Development Authority (PFRDA) to take the citizens under the affordable social security scheme.
  • NPS is a low cost, tax efficient, flexible and portable Schem Employees and employers both contribute to the scheme.
  • Any citizen of India, resident or non-resident is allowed to join the scheme. Individuals aged between 18-60 years are allowed to participate in the scheme. Citizens can join the scheme as individuals and employer-employee groups after the KYC procedure.
  • The Swavalamban scheme: It covers unorganized sector workers between the ages of 18-55 years. This implies that any worker between the ages of 18-55 years can become a subscriber and is liable for receiving pension at the age of 60 years.
  • It is essentially a contributory scheme which provides for a minimum monthly contribution of Rs 100 and a maximum annual contribution of Rs 12,000. The Union government on its part shall contribute Rs 1000 per year.
  • Upon attaining 60 years of age, subscribers will be able to withdraw 60% of their contribution, while the balance 40% will be given as monthly annuity by LIC (Life Insurance Corporation of India).
  • Atal Pension Yojana It is a pension scheme mainly aimed at the unorganized sector such as maids, gardeners, delivery boys, etc. This scheme replaced the previous Swavalamban Yojana which wasn’t accepted well by the people.
  • The goal of the scheme is to ensure that no Indian citizen has to worry about any illness, accidents or diseases in old age, giving a sense of security. Private sector employees or employees working with such an organization that does not provide them pension benefit can also apply for the scheme.
  • There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000, or Rs 5000 on attaining an age of 60. The pension will be determined based on the individual’s age and the contribution amount.

About Pradhan Mantri Shram Yogi Mandhan:

  • It is the pension scheme for informal workers. Under this scheme, subscribers will receive an assured monthly pension of Rs. 3,000 per month from the age of 60 onwards.
  • Towards this, they will have to contribute Rs. 55 a month (if they join at the age of 18 years), or Rs. 100 a month (if they join at the age of 29 years). The government will match these contributions.
  • The government has reportedly set a cap on the age of joining at 40 years, but this is yet to be officially confirmed by the Labour Ministry.
  • Importance of Unorganised Sector: Half of India’s GDP comes from the work done by 42 crore workers in the unorganised sector, such as street vendors, rickshaw pullers, construction workers, rag pickers, agricultural workers, beedi workers, those engaged in the handloom and leather industries, and domestic workers.
  • Scheme is aimed at achieving that, and therefore includes all informal sector workers with an income of less than Rs. 15,000 per month. According to the government, this works out to 10 crore people.
  • Pradhan Mantri Shram Yogi Mandhan could possibly come at the expense of an existing pension scheme — the National Social Assistance Programme (NSAP) — announced last year to benefit more than three crore poor senior citizens, disabled people, and widows.

Will the scheme work?

  • Social sector workers have pointed out that creating a voluntary contributory pension scheme for informal sector workers is not likely to work as their salaries are low. The argument is that they already pay large amounts as indirect taxes.
  • Further, for a salaried worker, the pension contribution can be cut from the salary. A daily wage earner or migrant labourer will, however, have to regularly deposit her income each month, which is an uncertain proposition.

The Way Ahead

  • Securing financial stability for old age is very important. It offers elderly the freedom to lead their lives as they desire. They will no longer have to depend on others for financial support.
  • Meanwhile, With the implementation of this scheme, unorganised sectors will be able to secure their future economic needs. The government is silent on what happens to the scheme if an informal sector worker misses a contribution.
  • Another matter to be considered is what happens to a worker who transitions to the formal workforce. Answers are awaited on these questions.


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