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The coverage of India’s population under pension schemes has been a matter of concern to policymakers for long. Barely 15 per cent of the working population of 500 million is covered under pension schemes, and those covered are largely in the organised sector. The unorganised sector of the economy, where 85-90 per cent of the workforce is employed, is largely uncovered.
The concerns over low coverage arise on account of several factors: increasing longevity, erosion of the joint family system and the rising cost of living, especially medical expenses. It is estimated that there will be 180 million people over 60 by 2030 and 300 million by 2050, and unless there is old-age income security, the consequences could be severe.
The government has started taking steps to address this issue by launching schemes for the unorganised sector, beginning with the Swavamban scheme in 2010. This was followed by the Atal Pension Yojana (APY) in 2015, which improved upon the Swavalamban scheme by providing a guaranteed pension.
This year, the government announced three new pension schemes which provide for a pension amount of ₹3,000 per month for different segments of the unorganised sector — the PM Shram Yogi Mandhan Pension Yojana for poor labourers, the PM Karam Yogi Mandhan scheme for retailers and shopkeepers, and the PM Kisan Pension Yojana for small and marginal farmers.
Government contribution
These three schemes follow a segmented approach, and their design is patterned on the lines of the APY in terms of age eligibility, pensionable age, government guarantee and voluntary nature. However, these schemes have the additional benefit of government co-contribution of 50 per cent, which is not available in the APY.
On the other hand, the APY has some additional features, such as the lump-sum payout to nominees and the continuation of full pension to spouse on death of subscriber, which are absent in the three schemes.
The availability of government co-contribution makes a substantial difference to the contributions that subscribers have to make. To give an example, in the three schemes, the contribution payable by a subscriber aged 29 for a pension of ₹3,000 is only ₹100 per month, with the government also contributing ₹100 per month; in the APY, the contribution rate for the ₹3,000 pension plan (which is comparable to the new schemes) is ₹318 per month, entirely borne by the subscriber.
Evolving the APY scheme
While the higher contribution rates for the APY are justified by the higher benefits available, the fact that the entire contribution is borne by the subscriber queers the pitch against the scheme, and may be a dampener to its future growth. In fact, there could be a migration away from the APY to the new schemes, as existing APY members are permitted to join the three new schemes. This would be unfortunate, as the APY has shown good growth and has now stabilised and with its unique features is of appeal to many in the unorganised sector.
Moreover, since the objective of all the pension schemes is to increase coverage of the unorganised sector to the maximum extent possible, any distortions in scheme features which benefit some at the expense of others should be avoided. To this end, the government could consider providing co-contribution benefits to APY subscribers as well, so that the present anomaly is reduced. The co-contribution could be restricted to just three pension plans of the APY — the ₹1,000-, ₹2,000- and the ₹3,000-plans — and not for the higher ₹4,000- and ₹5,000-plans.
This will create a level playing field and help to keep subscriber interest in the APY alive. The subscribers in APY will still pay more than in the new schemes, but this would be justified by the higher benefits available (see table).
For the ₹3,000-pension plan in the APY, subscribers would still pay more than in the three schemes (₹159 versus ₹100) but this would be justified by the higher benefits available in the APY.
A level playing field will go a long way in ensuring that there is good growth in all pension schemes, better coverage of the unorganised sector, and a big step forward in making India a pensioned society.
The writer is former Chairman, PFRDA
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