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The move is expected to benefit millions in India’s unorganised sector by enabling them to access the benefits of a pension scheme. According to National Sample Survey Organisation data for 1999-2000, out of a total workforce of 397 million, only 28 million workers are employed in the organised sector. The rest work in the unorganised sector
Concerned over the absence of a social security mechanism for people working in the unorganised sector, the Pension Fund Regulatory and Development Authority (PFRDA) is planning to roll out a scheme for such employees within the next five or six months. The PFRDA will also shortly appoint an institutional advisor to recommend a rollout strategy for the new scheme. According to the latest report of the National Commission for Enterprises in the Unorganised Sector (NCEUS), also known as the Arjun Sengupta Committee, submitted to the Government of India in 2006, there are over 340 million (approximately 34 to 37 crore) workers in the unorganised sector in India. The Sengupta Committee noted that unorganised sector workers contribute around 60% to the country’s national economic output. Around 28 crore people work in the rural sector, of which an estimated 22 crore are in the agricultural sector. Around 6 crore reside in urban areas. Women make up 11-12 crore, of which around 8 crore are engaged in agriculture. “We need to reach out to these sections in order to make ‘defined contribution’ pension schemes a success story. We are in the process of appointing an institutional advisor and expect the recommendations in another two to three months,” said N R Rayalu, managing trustee of the New Pension Scheme (NPS) Trust. The name of the advisor is likely to be announced within a week. A separate committee under Deepak Parekh, chairman of Housing Development Finance Corporation, has also been constituted to chart out investment guidelines for the pension fund. Meanwhile, the PFRDA also plans to invite expressions of interest for the appointment of more pension fund managers in the country. At present there are only three public sector managers owned by Life Insurance Corporation, UTI Asset Management Company and State Bank of India, which manage pension funds under the NPS that now covers all central government employees who joined service on or after January 1, 2004. The corpus currently stands at Rs 1,500 crore, but this is likely to increase to as much as Rs 6,000 crore in the next six months when 21 state governments are expected to transfer their pension funds to the NPS. Last month, Finance Minister P Chidambaram announced that his ministry had advised the pension regulator to open up the NPS to private citizens as well. Once implemented, the NPS will allow customers to choose a fund manager of their choice at the beginning of each financial year. Also, customers can choose their investment pattern according to their risk appetite. The scheme is based on defined contributions, unlike the present system where pension benefits are based on a formula linked to the last-drawn salary. According to Rayalu, the biggest challenge in rolling out the pension scheme is financial education in the unorganised sector. Currently, the regulatory body is studying the operations of pension fund schemes in other world markets. “We are learning from the pitfalls in the operations of similar pension funds in foreign countries,” said Rayalu. In India, Rajasthan is the only state to have successfully implemented a micro pension scheme for its low-income unorganised sector workers. The scheme -- Rajasthan Vishwakarma Unorganised Sector Workers (Motivational) Contributory Pension Scheme 2007 -- started in mid-August 2007. The pension scheme is jointly implemented by the state government and Invest India Micro Pension Services Ltd (IIMPS), a group company of the Invest India Economic Foundation (IIEF), as consultant and turnkey implementation agency. It is open to bonafide resident workers of the state, and covers as many as 20 occupations. According to the latest numbers, an estimated 17,000 workers have enrolled in the six districts of Jaipur, Ajmer, Bikaner, Udaipur, Dausa and Dhaulpur. The state government aims to cover at least half-a-million workers by 2010. “The scheme is a fair, simple, affordable and sustainable mechanism of saving for old age. Eligible workers between 18 and 60 years can contribute an amount as low as Rs 100 at a time to save in the scheme,” said Kavim Bhatnagar, a civil servant, who is currently on deputation to the IIEF and is implementing the scheme. “The government is also paying an interest of 8% on total contributions in the retirement account. In future, it may also decide to invest the funds of the scheme with a regulated fund manager or the pension fund regulated by the PFRDA,” he added. IIMPS says as many as 80 million, most of them in the urban sector, of the 370 million unorganised sector workers in India are capable of saving for their retirement, and estimates that the aggregate annual savings capacity of this population will exceed Rs 11,000 crore. Source: The Economic Times, September 27, 2008
Hindu Business Line, September 27, 2008
The Indian Express, September 27, 2008
Business Standard, September 9, 2008
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