1. The demand for restoring the old pension scheme
- GS 2, Govt Policies and Interventions, Welfare Schemes, Human Rights.
Context:
- The Rajasthan Chief Minister ordered the reinstatement of the old pension plan for government employees hired on or after January 1, 2004. The declaration indicated that the State’s National Pension System (NPS) will be phased out.
- As a result, Chhattisgarh announced the reintroduction of the Defined Pension Benefit Scheme (DPBS/OPS).
- According to a United Nations estimate, the population share of the 60+ age group in India would rise to 20% by 2050 from the current 8%. This sector of the population is unable to work owing to age-related or health-related constraints. As a result, individuals demand enough financial assistance from the government in order to live a decent and healthy life.
- A pension is a regular income provided by the government or an organisation to someone who is unable to work due to age, health, or social conditions. A new Parliamentary committee report emphasises the insufficiency of the pension amount granted.
- Concerning the Defined Pension Benefit Schemes or the Old Pension Schemes:
- The plan ensures a lifetime income after retirement. Typically, the insured amount is equal to 50% of the most recently drawn income.
- The cost of the pension is borne by the government. The plan was phased down in 2004.
National Pension System (NPS):
- It is a programme in which employees contribute to their pension corpus from their salary, with the government matching their contributions.
- Pension Fund Managers spend the funds in approved investment programmes.
- At retirement, they can receive 60% of the corpus tax-free, while the remaining 40% is invested in annuities, which is taxed.
- It may be divided into two parts: Tier I and Tier II.
- Tier-II is a voluntary savings account that allows for withdrawal flexibility and can be withdrawn at any time while a Tier I account is operating.
- The plan is open to private persons.
- Withdrawals from this account are granted based on the subscriber’s needs as and when claimed.
Beneficiaries:
- NPS became available to all Indian citizens in May 2009.
- The NPS can be joined by any individual citizen of India (both resident and non-resident) between the ages of 18 and 65.
- However, holders of OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) cards, as well as Hindu Undivided Families (HUFs), are ineligible to register NPS accounts
Other requirements for obtaining an NPS account include:
- You must be a citizen of India.
- Applicants must be between the ages of 18 and 65.
- KYC compliance is required.
- You must not have an existing NPS account.
PFRDA (Pension Fund Regulatory and Development Authority):
- It is the statutory Authority established by a Parliamentary Act to regulate, develop, and assure the orderly expansion of the National Pension System (NPS).
- It reports to the Ministry of Finance’s Department of Financial Services.
It appoints numerous intermediary agencies such as Pension Fund Managers, Central Record Keeping Agency (CRA), and so on.
It develops, promotes, and supervises the NPS pension business, as well as administering the Atal Pension Yojana.
- PFRDA was established in 2013 by the PFRDA Act to enhance old age income security by building pension funds to protect the interests of pension fund subscribers.
- The contributions are pooled into a single pension fund, which is managed by professional fund managers who are authorised by the Pension Fund Regulatory & Development Authority (PFRDA) and invest according to approved investment criteria.
The following are the distinctions between OPS and NPS:
- The primary distinction between OPS and NPS is that NPS invests workers’ contributions in market instruments such as stocks throughout the course of their employment.
- As a result, the NPS creates market-linked returns without providing any security of returns, but the OPS does by basing the monthly pension on the employee’s previous pay.
- NPS offers a pension fund upon retirement that is 60% tax-free upon redemption, but the remainder must be invested in an annuity, which is completely taxable. OPS income is not taxed.
- Finally, OPS may force governments to reconsider their economic priorities, whereas NPS was designed to alleviate this obligation.
- OPS provides a monthly payout equivalent to 50% of the most recently received salary.
Need of pension system in India:
Constitutional mandate: The pension programmes are a key step toward fulfilling Article 41 of the DPSP. Article 41 requires the government to offer public assistance to its residents in cases of old age, unemployment, disease, and disability, among other things.
Growing Population: According to a recent UN estimate, the proportion of older people in India is expected to rise to about 20% by 2050. This necessitates providing them with enough protection.
Longer Life Expectancy: As technology and healthcare develop, individuals will live longer lives, necessitating the need for pension assistance.
Social Apathy: As society has become more materialistic, there has been an increase in cases of children abandoning their parents. In such circumstances, the pension can provide hope for survival and help to lower the suicide incidence among the elderly.
Dignified Life: Schemes such as PMKMY will enable small and marginal farmers live a dignified life in their old years by providing necessary financial assistance. If such assistance is not offered, the devastating repercussions of farmer suicide will ensue.
Suggestions:
- The government must act quickly in response to the recommendations of the Parliamentary Committee in order to rationalise pension coverage and amount.
- In addition, the government can put the CAG’s Performance Audit Report on the National Pension System into action. It suggested a few crucial actions, such as-
- Establishment of a strong mechanism to assure complete coverage.
- Payment delays should be compensated.
- The government must identify all cases of legacy contributions that have not been remitted to the Trustee Bank.
- A minimum guaranteed return must be given to the subscriber in order for a sufficient amount to be accessible after retirement.
- Foreign pension funds should be encouraged to relieve the government’s fiscal burden.
- The government should prioritise the timely and thorough execution of the Reserve Bank of India’s National Strategy for Financial Education (NSFE): 2020-2025. This will result in an economically conscious and powerful India.
