Pension For All: Rather than spending on wasteful subsidies, govt can do direct benefit transfers

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September 30, 2020 5:15 AM

If the government wishes to create a truly pension-protected society, it has to do this for the informal sector. Unfortunately, the Social Security Code, 2020, is ambiguous in this regard.

This despite the fact that the government was promising a maximum contribution of Rs 1,000 per year for five years to early subscribers.This despite the fact that the government was promising a maximum contribution of Rs 1,000 per year for five years to early subscribers.

The government is considering easing the rules for investment in the Employee Pension Scheme; this would make it easier for employees to create a cushion for their old-age. But, if the government wishes to create a truly pension-protected society, it has to do this for the informal sector. Unfortunately, the Social Security Code, 2020, is ambiguous in this regard.

While it talks of this, it leaves the question of funding unanswered. The government introduced the Atal Pension Yojana (APY) in 2015, guaranteeing a pension of Rs 1,000-5,000 based on a minimum monthly contribution of Rs 42. Although there are 47 crore unorganised workers as per the 2011 census, APY could only attract 2.25 crore subscribers. This despite the fact that the government was promising a maximum contribution of Rs 1,000 per year for five years to early subscribers.

So, while the government needs to make sure that more people join APY, it also needs to come up with more options for a higher pension. It can do so by increasing the pensionable income allowed under APY to Rs 10,000, Rs 15,000 and Rs 20,000, based on contribution. Besides, the option of Rs 5,000 contribution needs to be extended to all the beneficiaries enrolling under the APY scheme. And, the government must allow flexi-payment options, ranging from monthly to part-payment for different types of workers. Rather than spending on wasteful subsidies, it can do direct benefit transfers, including a minimal contribution on behalf of beneficiary households towards pension generation.

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