Speaking at the 4th Pension Conference held in Delhi on Wednesday, PFRDA chairman Hemant Contractor recommended the introduction of pension auto-enrolment in India for firms registered under the GST. Finance Minister Arun Jaitley was in attendance when the recommendation was made.
It is estimated that 85% of India’s workforce is in the unorganised sector. The NPS or National Pension System is a pension system that covers this sector as well as government and corporate employees. It has a two crore subscriber base. About 86 lakh of these subscribers come from the Atal Pension Yojana, an NPS scheme which specifically targets the unorganised sector. You can read more about it here. However, the lack of payrolls or other records in this sector had previously slowed down the growth of the NPS in the sector.
PFRDA chairman pointed out that there are roughly six crore medium and small enterprises (MSMEs) in India, most of whom employ five people or less. This keeps them out of the ambit of organised sector pensions such as the EPF. The introduction of the GST has brought roughly half of them under the GST umbrella making it necessary for them to keep books of accounts and other records. This will make it possible to bring them under the ambit of a compulsory pension system.
However keeping the individual choice in mind, ‘soft-compulsion’ may be a better option through the mechanism of auto-enrolment. Under this facility, the employer automatically enrolls all employees into the NPS but employees are given the freedom to actively ‘opt-out.’ However, the opt-out must be a positive choice for the employee. Auto-enrolment has been successfully implemented in other countries such as the UK. Another possible way of expanding APY coverage would be to tie it in with the Government’s proposed Ayushman Health Insurance Scheme.
NPS Trustee Radha Krishnan Nair also called for significant changes to the NPS to increase coverage and efficiency. He called for increasing the commissions/incentives to Pension Fund Managers (PFMs) to incentivise them to distribute the scheme along with the greater freedom to government employees to choose asset allocation and pension fund managers. This is something that rupeeiq.com had also previously advocated.