Theresa May’s maiden visit to India as the new prime minister of UK gave a ray of hope to the supporters of the proposed Social Security Agreement (SSA) between India and the UK. Ardent followers of the topic know that the India-UK SSA has been a long-cherished dream of the Indian government.
The SSA provides two major benefits to employees going on assignment / secondment from their home country to host country for a specific period. First, it exempts employees from contributing to the host country’s social security scheme while remaining covered under the home country’s social security scheme. Second, it allows employees to claim benefits under the host country scheme by totalising the period of coverage in the home and the host country and by allowing export of benefits.
Currently, Indian employees working in the UK may be required to contribute towards both the Indian and the UK social security schemes. Despite mandatory contributions in the UK, the employees, in most cases, are unable to reap the UK social security benefits. If India and the UK enter into a SSA, then Indian employees may claim exemption from social security contributions in the UK by obtaining Certificate of Coverage (CoC) from Indian Provident Fund office.
On satisfying certain conditions under the UK National Insurance Contribution (NIC) law, employees are currently exempt from contributions for the first 52 weeks of employment in the UK. However, once the SSA comes into force, Indian employees sent to the UK may be exempt from the UK NIC for their entire duration of assignment. Generally, SSAs allow exemption for up to five years with a scope of extended exemption with mutual consent of the authorities.
The SSA will also benefit employees who have not obtained CoC and have contributed to the UK social security regime. Such employees will be able to combine the period of employment in both the countries to determine eligibility to social security benefits in the UK.
From April 6, the UK has introduced new pension rules whereby an employee is required to have at least ten years of contributions in the UK to be eligible for pension benefit. Thus, where Indian employees contribute to the UK social security for less than 10 years, no UK pension benefit is available in the absence of SSA. Also, under the export of benefit clause of the SSA, the UK authorities will remit pension and other benefits to Indian employees directly in India.
However, the SSAs entered by the UK with Japan and Korea do not have any provisions relating to totalisation and export of benefits. It will be interesting to see whether the UK would be willing to change its course for India. As the UK is one of the prime destinations for outbound employees from India, a SSA will favourably impact the cost of employment for employers in both countries.
The writer is director, Tax & Regulatory Services, EY
Views expressed here are personal