The Employees’ Provident Fund Organisation (EPFO) may widen the coverage of its pension scheme to bring on board all workers, belonging to both organised and unorganised sectors, irrespective of their monthly income. The new scheme is proposed to be based on individual contribution and ensure that each worker gets a minimum pension of Rs 3,000 a month after attaining the age of 60 years.
The proposed scheme, likely to be named Universal Pension Scheme (UPS), intends to resolve various challenges the existing Employees’ Pension Scheme (EPS), 1995 suffers from including, no coverage for employees earning above Rs 15,000 a month, a paltry pension amount for the existing subscribers and coverage of left-out section within the organised, unorganised/self-employed workforce.
The new scheme would provide for superannuation pension, widow pension, children pension and disability pension. It would, however, raise the minimum qualifying period of service for pension benefit to 15 years from 10 now. UPS will provide pension to the family if a member died before the age of 60 years.
“The minimum accumulation of approx. Rs 5.4 lakh is required for a minimum of Rs 3,000 pension per month. Members can choose to contribute more voluntarily and accumulate significantly larger amount for a higher pension,” an ad-hoc committee, set up by the Central Board of Trustees (CBT), EPFO’s highest decision-making body, said.
Presently, the EPF contribution is mandatory for workers earning up to Rs 15,000 a month in establishments having more than 20 workers. Each employee contributes 12% of her basic salary into the EPF scheme. This is matched by the employer.
EPS is mandatory for all contributing to EPF. Of the employers’ contribution, 8.33% is deposited in the pension scheme subject to a cap of Rs 1,250 per month based on the salary cap of Rs 15,000 per month. The amount flows into a pension pool without earning any interest for the subscriber. After retirement, pension is paid, on monthly basis, on a set formula for all.
Under the proposed new scheme, organised sector workers will contribute on the scheme as certain percentage of wages (so that when wages grow, the contribution to the fund increases). Unorganised sector workers will have to contribute a fixed amount with flexibility of making voluntary payments. The scheme will not create any contingent liability on the government in future.
Subject to approval of the committee’s suggestions, the new scheme may also suggest raising the wage ceiling from up to Rs 15,000 a month now, but “the liability of the employers should be restricted to maximum contributions @wage Rs 25,000 or the revised wage ceiling amount.”
The new scheme will also make the interface making switching between formal and informal employment seamless and easy.
“The final in the form of a pension is contingent on the earnings o the fund during the accumulation phase. The committee discussed that since the pension funds would be locked in for the long-term, a lightly different investment strategy would be required that what is being followed for a provident fund where the investment horizon is much shorter,” the EPFO said.