The Pension Fund Regulatory and Development Authority (PFRDA) is considering auto enrolment of all employees in the Atal Pension Yojana (APY) which was only targeted at the unorganised sector workers till now. This would mean that even workers in private sector, government and semi-government organisations may be auto enroled in the scheme. This proposed auto-enrolment in APY would be in addition to any existing subscription to a pension scheme (such as EPS or NPS) that an employee may have
There’s a looming retirement crisis in the country with a large percentage of the workforce still without adequate retirement savings or a plan in place. Both the Employees’ Provident Fund (EPF) and the Employee Pension Scheme (EPS) may not be sufficient to meet the post-retirement needs of many employees.
Atal Pension Yojana (APY) was launched in June 2015 to meet the pension needs of the unorganised sector labour force. As on August 31, 2016, the total number of subscribers registered under APY were about 30 lakh.
To increase the pension coverage in the country, there could be a ‘soft compulsion’ for employees to join APY. For an employee, joining the APY scheme may soon become mandatory. PFRDA is considering introducing “soft compulsion”, generally known as automatic enrolment, to increase the pension coverage. A concept note has, in fact, already been introduced.
And for this, PFRDA has identified the existing APY and finds it ideally suited, especially for the informal sector. In its view, auto-enrolment in APY could be considered for this purpose.
APY currently is open to all Indian citizens in the 18-40 age group. There has been a proposal to extend it to 50 years. Under APY, there is a guaranteed minimum monthly pension for the subscribers ranging between Rs 1,000 and Rs 5,000.
As per the indicative illustration of the scheme, if a person chooses the Rs 5,000 per month guaranteed pension option then he would have to contribute between Rs 210 and Rs 1,454 per month (depending upon the age of entry into the scheme) till the age of 60. Following his death, the pension amount goes to his spouse and later the corpus (about Rs 8.5 lakh) goes to the nominee.
Opt-out option for the employee
Even though joining APY will be sort of compulsory, the employee will be given the option to opt out of the system any time after a year following automatic enrolment. Contributions already made will be refunded after adjustment of account opening, maintenance charges, etc.
As per the concept note, all employees and workers in private sector, government, semi-government organisations could be brought under this automatic enrolment plan. Therefore, guidelines and directions to employers and organisations employing or engaging any person, whether formally or informally, will be to automatically enrol them into APY.
Initially, there might not be any penalty for employers or organisations but later on they may be penalised for not enroling their employees in APY. There will, however, be no obligation for the employers or organisations to contribute to the pension of the enroled employees.
But if they do, they will be eligible for tax deduction to the extent of their contribution to the employee. Companies which could be sole proprietorship, partnership, etc., with less than 19 employees will also be required to automatically enrol all their full-time employees into APY.
Clubbing other social schemes
Having enroled into APY, insurance components like insurance coverage of health and life may also be bundled with APY to take care of health and life contingencies of the employees.
For providing health coverage, Rashtriya Swasthya Bima Yojana (RSBY) may also be extended to the members who have auto enroled into APY.
Remember, there are five plans or options under APY, providing guaranteed pension of Rs 1,000, Rs 2,000, Rs 3,000, Rs 4,000 and Rs 5,000 per month at the age 60 and the employees can opt to join any of these. RSBY might only be extended to those opting for a monthly pension of Rs 1,000. As per the proposal, there will also be cashless benefits for members under RSBY in the empanelled hospitals for those auto enroled in APY.
Life insurance and insurance against disability as provided under Pradhan Mantri Suraksha Bima Yojana (PMSBY) may also be clubbed with APY auto enrolment.
For testing the waters, the auto enrolment into APY may be started in select segments of the informal sector. The above is a concept note floated by the PFRDA and the final picture may emerge only in the next few months.
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