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New sectors under Govt pension plan

Following its inclusive and aam aadmi political mandate, the first budget of the UPA-II government on July 6 is likely to bring old-age security closer to 393 million workers in the unorganised sector by making the new pension system (NPS) more affordable, report Gautam Chikermane and Sandeep Singh.

business Updated: Jun 19, 2009 02:23 IST

Following its inclusive and aam aadmi political mandate, the first budget of the UPA-II government on July 6 is likely to bring old-age security closer to 393 million workers in the unorganised sector by making the new pension system (NPS) more affordable.

These workers as well as professionals such as doctors and lawyers could see the government take the tab on all administrative costs of the NPS, a pension system

under which subscribers can save, accumulate and ‘grow’ money to fund their retirement.

The government is considering two options, a senior government official told Hindustan Times on the condition of anonymity.

One, bearing the NPS’s administrative costs for the first three years.

And two, waiting for a certain minimum number of subscribers, say the first 1-2 million.

“This will cost Rs 50-100 crore to the exchequer and needs to be looked at as the cost of underwriting social security,” the official said.

While new schemes in Budget 2009-10 are being discouraged, pensions become part of providing old-age security, “and need to be treated like providing food security”, the official said.

A subscriber to the NPS pays Rs 470 per annum as administrative costs. At an annual contribution of Rs 6,000, for, say, a construction worker, it makes up 7.8 per cent of the cost. But since this is a fixed cost, for a better-off professional such as a doctor or a shopkeeper investing Rs 1 lakh, the cost falls to 0.5 per cent.

The government already contributes 1.16 per cent of the salary of the 35.7 million subscribers of the Employees’ Pension Scheme in the organised sector, and bears the administrative costs for the 5 lakh government servants under the NPS.

“It could not be the government’s intention to give this contribution only to those who are working in the organised sector,” said D. Swarup, chairman, Pension Fund Regulatory and Development Authority. “I’ve written to the government to give a co-contribution in respect of the unorganised sector through the NPS.”

According to the head of one the six pension fund managers authorised to manage pension money, “There is a strong case for the government to support the NPS by taking on the administrative costs.”