India: Pension to cover state staff, voluntary sector

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India: Pension to cover state staff, voluntary sector

By P V Vasanta Kumar, Business Standard

May 30, 2003

Hyderabad, India - The new pension plan being brought in by the Indian central government shortly will gradually rope in all state government employees and voluntary sector people including the self-employed, those working in the unorganised sector and casual labour over a period of time.

This was disclosed here by J S Sarma, additional secretary to the Government of India for pensions.

The move is part of a new social security structure that the government is planning to put in place for the working class.

We are planning to implement the scheme initially for the new civil servants entering the services, excepting the defence personnel with effect from January 1, 2004.

The new plan, is a defined contribution scheme, which means the contribution to the scheme will be pre defined while the returns are provided to the members based on the performance of the scheme and not guaranteed,” Sarma, who was here to participate in the two day “Private Pensions in Asia” conference told Business Standard.

There will be two tiers in the new plan, with tier 1 being non withdrawable portion where the employer matches the employee’s contribution, and the tier 2 being a withdrawable portion where there would not be a matching contribution.

The government might also introduce a new Income Tax section to provide tax benefits for investments into the new scheme, Sarma said.

Currently the employees, under the existing pension plan are getting defined benefit (annuity), i.e 50 per cent of their last drawn salary.

The existing social security structure for the salaried class consists of a employee provident fund, a pension scheme run by the EPF and a general provident fund, contributions to which are voluntary.

There are about five million central government employees and an equal number of state government employees.

Each year, we are planning to bring in about 50,000 central government employees under the new pension plan.

A majority of the state government employees are showing interest to bring in their employees under the new scheme.

Out of a 315 million people working in the voluntary sector, fifty per cent are self employed, fifteen per cent are working in unorganised sector and the rest are casual labour. The government’s idea is to bring in these people into the new plan fold, Sarma said.

According to him, the new pension fund regulatory authority will come into existence in the next few days.

There will be only six fund managers to be permitted by the authority initially with each fund offering three schemes - safe, growth and balance plans. Contributors can hop from one scheme to the other as well as change his annuity provider.