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The scheme proposed by Finance Minister Piyush Goyal in this Budget, the ‘Pradhan Mantri Shram-Yogi Maandhan’, intends to provide an assured monthly pension of ₹3,000 a month to workers in the unorganised sector who earn up to ₹15,000 per month.This scheme seems to replicate the existing pension plan ‘Atal Pension Yojana’ (APY), which is meant for the citizens of India, including the unorganised sector workers. However, returns under the newly proposed scheme seem to be more attractive than the APY.
How it works
As per the Budget speech, a worker joining the Shram-Yogi Maandhan, on attaining 29 years of age or above, will have to contribute ₹100 per month, while those joining at the age of 18 will have to contribute ₹55 per month. They will receive the pension amount of ₹3,000 per month after attaining 60 years of age, till death. The government will also contribute during the accumulation period by depositing a matching share in the pension account of the worker every month. However, detailed information, including on maximum entry age and expenses charged, are not available.
Comparison with APY
APY was launched in 2015 to replaced the earlier Swavalamban pension scheme for workers in the unorganised sector. Under this, a contribution from the government for eligible subscribers will be made for five years, subject to a maximum of ₹1,000. The subscribers will receive a fixed minimum pension of ₹1,000, ₹2,000, ₹3,000, 4,000 or ₹5,000 per month, after the age of 60, depending on their contributions as well as age of entry.
Charges involved in maintaining the APY account are similar to the NPS including registration, record keeping, account opening and maintaining charges, and investment management fee. The monthly pension will be available to the subscriber and, after his time, to his spouse. After their deaths, the pension corpus will be returned to the nominee of the subscriber.
Attractive return
The monthly amount payable under the proposed pension scheme seems to be lower than that of the APY for a person of the same age. For instance, the monthly premium for a worker joining at the age of 29 for availing a monthly pension of ₹3,000 is just ₹100 under the new scheme, while under APY, it is ₹318. Assuming that, if the worker receives pension of ₹3,000 per month for 20 years ( until 80 years of age) after attaining 60, the IRR (internal rate of return) works out at 11.3 per cent for the new scheme. But under the APY, the IRR is just 6.9 per cent. (see Table).
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