Move to boost pension reforms — PPF likely to be phased out

back

Want to support Global Action on Aging?

Click below:

Thanks!

Move to boost pension reforms — PPF likely to be phased out

By Sarbajeet K. Sen , The Hindu Business Line

September 1 , 2003

New Delhi--THE proposed pension sector reforms are expected to have a major victim, with the Government considering phasing out the hugely-popular three-decade old Public Provident Fund (PPF) scheme.

With powerful tax saving and retirement planning features and backed by Government guarantee on deposits, the open-to-all PPF scheme has been major attraction for all sections of the population with millions of accounts in operation in banks and post offices across the country.

However, the Government is considering a gradual phasing out of the PPF scheme in order to provide the pension sector with the necessary `critical mass' to make the new structure viable. It is being argued that if the PPF scheme is phased out, a large portion of the deposits flowing into it would find its way into the proposed pension schemes options since they would also be offering similar benefits on tax, besides providing old age income security.

"The gradual phasing out of the PPF scheme seems to be a logical fallout of the decision to usher in a new pension structure for the country," a highly-placed Ministry of Finance official said. However, details of the proposed plans were not available.

The Government has recently announced the setting up of a new defined contribution pension scheme under which selected pension fund managers (PFMs) would offer schemes in which subscriptions would be made by fresh Government recruits and those in the unorganised sector in order to create a corpus for a steady old age income.

However, doubts have been expressed on whether the total number of new Government employees and other subscribers from the unorganised sector who opt for the new pension structure would be able to provide the necessary "critical mass" to make the new pension structure self-sustaining. The axe in the process is set to fall on the PPF scheme.

Set up under the Public Provident Fund Act, 1968, the PPF scheme is administered through the countrywide network of designated branches of public sector banks and post offices. The scheme that has a 15-year lock in and is extendable by blocks of five years subsequently is open to all individuals (including non-resident Indians) including opening of accounts on behalf of minors.

Minimum PPF deposit stands at Rs 100 and a maximum of Rs 70,000 in any financial year. The account holder had complete freedom to plan the pattern of his deposits, whether in lump sum or in instalments though the maximum instalment in a year has been set at 12.

Deposits under the scheme attract an interest of 8 per cent compounded annually along with a rebate of 30 per cent in the highest tax bracket under Section 88 of the I-T Act. Interest on deposits, interest accruals and withdrawals are exempt from tax. The scheme also provides facility for premature withdrawal and loans.

As an icing on the cake, it has been stipulated that the PPF balance cannot be attached under any order or decree of court in respect of any debt or liability incurred by the subscriber.