The Employees’ Provident Fund Organisation (EPFO) is planning to increase enrollments by making inroads into the unorganised sector — a segment where it has no presence and which is dominated by the National Pension System (NPS).
The move comes at a time when the government is redoubling efforts to push NPS and bring it on par with EPF, at least with respect to a favourable tax status.
“We are looking to improve our delivery… Once we achieve that, we will look to offer our services to workers in the unorganised sector,” said V P Joy, Central Provident Fund Commissioner.
At present, the EPFO, which manages a corpus of over Rs 8.5 lakh crore under the fund, caters almost entirely to workers engaged in the organised sector through a contributory provident fund, pension scheme and an insurance scheme.
While 12 per cent of basic salary and dearness allowance have to be contributed by all employees earning up to Rs 15,000 per month (not mandatory for others), the employer component (12 per cent) is mandatory in case of all employees.
The EPF, which is administered by the Ministry of Labour and Employment, recently also announced plans to bring contract workers under its ambit.
“EPF is targeting more enrollments under its scheme,” Joy told The Sunday Express, adding that the government has already improved EPF products “reasonably” and would focus on improving the delivery of its services.
The NPS, on the other hand, is a voluntary retirement savings scheme wherein individual savings are pooled in a pension fund, which is invested by Pension Fund Regulatory and Development Authority (PFRDA)-regulated professional fund managers into diversified portfolios comprising government bonds, bills, corporate debentures and shares.
The NPS is available for everybody; several companies are now providing this option to employees. At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth to purchase a life annuity from a PFRDA-empanelled life insurance company, apart from withdrawing a part of the accumulated pension wealth as a lump sum, if they choose so. NPS provides seamless portability across jobs and across locations, unlike all current pension plans, including that of EPFO.
In Budget 2016-17, Finance Minister Arun Jaitley had proposed imposing a tax on 60 per cent of the withdrawal amount from EPF in order to bring greater parity in the tax treatment of different types of pension plans. While that proposal was later withdrawn after a series of protests from trade unions and workers, the government also proposed tax exemption on withdrawal of 40 per cent of the NPS corpus at the time of retirement to bring it on par with EPF.
While the government’s budget proposals were aimed at having a uniform tax treatment for pension plans, Joy dismissed the possibility of growing competition with NPS.
“Let there be choice. Let people choose between whatever systems are operating for the benefit of the public. So let those systems run and as far as we are concerned, we have to worry about our products… what is good or bad for our workers, our clientele. If we are bad, we will improve so that people come to us,” Joy said.
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