Low-cost pension to cover 400 m workers

The New Pension Scheme has decided to break through to the vast majority of the workers in the unorganised sector,who are not financially capable of meeting the minimum investment needs to qualify for pension. The proposal would also allow approximately 400-million workers,a large percentage of which is barely literate to get free advice from a nodal group about which scheme would suit them the most. The Pension Fund Regulatory and Development Authority is planning a low-cost pension scheme that would cost the workers far less than the current annul contribution threshold of Rs 6,000.

The New Pension Scheme has decided to break through to the vast majority of the workers in the unorganised sector,who are not financially capable of meeting the minimum investment needs to qualify for pension. The proposal would also allow approximately 400-million workers,a large percentage of which is barely literate to get free advice from a nodal group about which scheme would suit them the most.

The Pension Fund Regulatory and Development Authority PFRDA is planning a low-cost pension scheme that would cost the workers far less than the current annul contribution threshold of Rs 6,000. That threshold works out to 16 of the annual income of an individual,estimated at Rs 37,490 per year,according to the latest data released by the governments Central Statistical Organisation.

The regulator had set the minimum investment limit of Rs 6,000 per year when it opened up for private citizens on May 1 this year.

Under the proposal,an NGO or a self-help group,representing marginal workers,would open a main account with the NPS. Workers would then be able to have sub-accounts with individual records of investments and returns. The main account operator would be responsible for choosing the investment option and would also have to pay the maintenance and fund management feesanother issue that seems to have hindered workers from joining the scheme.

Under the scheme,account holders have to pay Rs 50 for opening an NPS account,an annual maintenance fee of Rs 350 to the National Securities Depository Ltd,which is the central record-keeping agency,and another Rs 10 for every subsequent transaction. Moreover,they also have to pay charges to the point of presence and the fund manager.

The charges would be the same as that for individual account holders,but it would be paid by the NGO, a PFRDA official explained. The interim regulator is still working out the modalities of the scheme and is hopeful of launching it by year-end. Once it is finalised,it would be taken to the PFRDA Board for approval before formally being launched.

Every citizen should have some old-age security and so we are trying to make the reach of the NPS as widespread as possible. The objective now is to let vegetable vendor,domestic workers or even rickshaw pullers to enter the scheme, the official said.

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But to ensure that the savings are meaningful,the NPS would still prescribe a minimum investment limit. What this would be,would however be decided after discussions with NGOs and other stakeholders.

The PFRDA also plans to have stringent guidelines for NGOs and affinity groups who can open accounts under the scheme. We dont want any fly-by-night operators who run away with the savings, the official said.

The plan,if goes through,would be a significant step in the countrys social security efforts. So far non-government employees have only had the option to save in the EPFO. New Pension Scheme,opened up for private citizens earlier this year,has managed to get only about 1,800 subscribers so far.