Pension planning for poor: Government needs to rework its plan and budget

By: |
August 5, 2020 5:15 AM

The government needs to rework its budget to account for such contributions; why waste money giving a 90% food subsidy to 66% of the population, spend it for unorganised sector workers instead.

The government needs to rework its budget to account for such contributions; why waste money giving a 90% food subsidy to 66% of the population, spend it for unorganised sector workers instead.The Parliamentary Standing Committee on Labour has asked for the creation of a national database for the unorganised workers, a welfare fund for the inter-state migrant workers, and the creation of a social security fund to help them cope with the economic hardships that the pandemic has caused.

Even before the pandemic exposed the poor condition of millions of migrant workers in big cities, it was always clear informal sector workers—they comprise 85-90% of the country’s total workforce—faced a huge problem. Apart from their poor wage levels, they had next to negligible savings to fund either health emergencies or even post-retirement life. While the issue of health and life insurance have, to a large extent, been taken care of by insurance schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana, even formal sector workers—there are 5.7 crore EPFO accounts—don’t have too much money to look after their post-retirement needs and the retirement benefits offered are minuscule. Not surprisingly, the Parliamentary Standing Committee on Labour has asked for the creation of a national database for the unorganised workers, a welfare fund for the inter-state migrant workers, and the creation of a social security fund to help them cope with the economic hardships that the pandemic has caused; it has even recommended that a welfare fund be created specifically for inter-state migrant workers and that this be financed by six agencies—contractors, principal employers, receiving state, sending state, and the registered migrant workers (with minimal contributions).

Given the enormity of the funds required, it is unlikely the government is going to be able to do much; if it could have funded migrants who lost their livelihood due to the pandemic, they wouldn’t have rushed to head home in the manner they did. While a database of migrant workers should be created, a longer-term solution is what Gautam Bhardwaj and Sanjay Jain (bit.ly/3dX7IWn) have argued for in this newspaper. Assume a worker saves Rs 20 per day from the age of 18 and his contribution rises by 5% a year to adjust for a 5% inflation; and the government can be asked to, say, make a Rs 5,000 per year contribution for five years. This will give the worker a corpus of over Rs 20 lakh at the age of 60; and that, in turn, gives a monthly pension of Rs 14,760 in the first year, rising to Rs 29,222 at the age of 75, assuming a 5% annual pension indexation as well; change the savings to Rs 30 a day takes the retirement corpus to nearly Rs 30 lakh. Indeed, given informal sector workers do not have 365-day jobs, the scheme can be tweaked to allow for gaps in funding—or the difference can be made good by the government—and even unemployment insurance should be started.

The government needs to rework its budget to account for such contributions; why waste money giving a 90% food subsidy to 66% of the population, spend it for unorganised sector workers instead. To begin with, it should take away the ESIC’s Rs 90,000+ crore of surpluses and use this for unorganised sector pension/unemployment insurance. ESIC makes around Rs 15,000-crore surpluses every year as the health insurance/treatment benefits it provides workers are far lower than what it charges them. Ideally, mandatory ESIC contributions should be stopped, and workers must be allowed to choose more efficient alternatives; this is something Arun Jaitley had promised when he was the finance minister.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Low-effectiveness Covid vaccine a Hobson’s choice
2Farm reform? Why I can’t support the new farm Bills
3Tribal welfare: GI tag can help ST entrepreneurs thrive