The government may link the eligibility of collateral-free loans among a section of MSMEs under the PM Mudra Yojana to their workers being enrolled for the National Pension System (NPS). Though the proposal is at a preliminary stage, among the options being considered is making it mandatory for MSMEs with staff strength of less than 20 to bring all their workers under NPS to avail of the Mudra loans. The condition could apply only for a certain initial period of employment.
These sections of the small firms are being selected for the norm because units with 20 or more employees with salaries less than Rs 15,000 per month are already required by law to register for the EPFO scheme, another strong social security system.
“We feel that if auto-enrolment is made mandatory in the initial stage for MSMEs taking Mudra loans and employing less than 20 people, it would help NPS grow and bring more people under pension net,” an official said. The proposed condition would require an amendment to the Pension Fund Regulatory and Development Authority (PFRDA) Act.
After the mandatory NPS enrolment period is over, employees could be given the choice to exit the scheme. This proposal is modelled on a similar scheme in the UK where employers have to ensure that people are auto-enrolled in the pension scheme at the time of joining a new job. Almost 90% of such people never chose to opt out of the scheme, even though they have such choice.
The PFRDA is pushing for auto-enrolment under NPS to drive pension coverage growth in the country due to saturation of the government sector, for whom it is mandatory.
Currently, around 120 million workers, the bulk of whom are in the organised sector, enjoy some kind of retirement benefit under either of the following schemes: Employment Provident Fund (EPF), NPS, PM Shram Yogi Maandhan, Pradhan Mantri Kisan Maandhan, Coal Mines Provident Fund, Assam Tea Plantation Provident Fund, Seamen Provident Fund, and various other superannuation funds. However, there are nearly 380 million uncovered workforce in the country, most of which work in MSMEs which have no social security cover.
A section of organisations think EPFO is the only option. So, they ensure that their employees join the EPFO. There are about 50 million EPFO subscribers. Excluding the Atal Pension Yojana (a government-backed, voluntary scheme meant to provide old-age income security in the form of minimum assured pension in the unorganised sector), the NPS enrolments from the government and the private sectors is at 16.6 million. APY has 42.9 million subscribers.Officials said if auto-enrolment is made mandatory for a certain category of MSMEs, it won’t be very taxing for them or their employees. Only Rs 500 is required to open an NPS account and Rs 1,000 per year to keep it running. If they want to look at the guaranteed pension scheme, the annual contribution will be even less at around Rs 500 at the lower end.
Under Mudra, she can avail of collateral-free loans from banks and financial institutions for income-generating activities in the manufacturing, trading, and services sector and also for activities allied to agriculture across three loan products, viz Shishu (loans up to Rs 50,000), Kishore (loans above Rs 50,000 and up to Rs 5,00,000) and Tarun (loans above Rs 5,00,000 and up to Rs 10,00,000). As on November 25, 2022, more than 377.6 million loans amounting to over Rs 20.43 trillion have been disbursed since inception of the scheme in April 2015.
“Mandatory auto-enrolment under NPS if it happens will be great for pension coverage of more workers. In fact, the gratuity of MSME workers should be deposited in their NPS account as they often don’t get the benefit in normal circumstances,” Gautam Bhardwaj, co-founder of pinBox, a global pension-tech, said.
The Payment of Gratuity Act, 1972, is an act that makes the payment of gratuity mandatory for employers to their employees. The gratuity is 15 days’ wages for every year of employee service if they have worked for minimum five years.
Firms often misuse the provision to deny workers the benefit by employing them for less than five years. The minimum period for gratuity eligibility should be reduced to two years, Bhardwaj said. The gratuity amount would be sufficient to cover employees’ share in NPS, he added.