The labour ministry has proposed a minimum pension of Rs. 1,000 a month for all those who subscribe to the Employees’ Pension Scheme (EPS). If implemented, the move will benefit nearly 3 million workers engaged in small and medium enterprises with higher retirement benefits.
Under the EPS 95 scheme, which has been in operation since 1995, a part of the employees’ provident fund contributions are set aside into a separate corpus which they can claim as pension after retirement, either as a lump sum or as a monthly payment.
The amended scheme, for which the labour ministry has moved a cabinet note, would imply that the Centre may have to subsidise the fund through a budgetary grant to raise the pension level for all those who, as per their contributions, are eligible for a much lower payout.
Alternatively, it may have to adopt a model of a rolling debt by which it pays new retirees by dipping into the pool of high-income savers who have several years to reach the age of superannuation.
About 3.6 million individuals currently draw their pension from this scheme that has a corpus of Rs 1.95 lakh crore. Of them, 83% or nearly 3 million draw a pension of less than Rs 1,000.
More than a quarter (27%) or 972,000 of the eligible pensioners are engaged in seasonal manufacturing sectors such as bidi-making units, tea gardens, mining and quarrying activities with pension entitlements below Rs 500 a month. In some cases, the pension entitlements are as low as Rs 4 per month.
“EPS is a contributory fund, and low pensions mean that the monthly contributions by a member to the fund have been extremely low,” a labour ministry official told HT, explaining low-pension entitlements.
Dipping into the pool of high-income younger savers to subsidise current low-income retirees, however, carries the risk of creating a fragile financial structure.
“If the proposal of a minimum Rs. 1,000 per month sails through, then their monthly pension will have to come from the amounts deposited by other employees,” the official said.