Issue of Pension System in India – Explained, Pointwise

Introduction

As per a United Nation’s report, the Population Share of the 60+ age group in India will increase to 20% by 2050 from the present 8%. This segment of the population is unable to work either due to age-related restrictions or health-related reasons. Thus, they require adequate financial support from the government for living a dignified and healthy life.

Pension is a regular income paid by a government or an organization to someone who no longer works, usually because of their age, health or social circumstances. A recent report by the Parliamentary committee highlights the inadequacy of the pension amount provided.

Current Scenario

• Recently Parliamentary Standing Committee on Rural Development submitted its report to Lok Sabha.
• In its report, the Committee said that the centre must increase the “meagre” pensions provided to poor senior citizens, widows and disabled people. The committee also pointed out towards low pension amounts given under the National Social Assistance Programme (NSAP).
• Parliamentary Standing Committee on Agriculture also found out the low level of enrolment under the Pradhan Mantri Kisan Maan Dhan Yojana (PMKMY).

Pension system in India

1. National Pension System (NPS): It is a government-sponsored pension scheme.
   • It was launched in 2004 for government employees. However, in 2009, it was opened to all sections.
   • The Pension Fund Regulatory and Development Authority(PFRDA) implements and regulates this scheme.
   • Any individual citizen of India (both resident and Non-resident) in the age group of 18-65 years can join NPS. 
2. Employees Pension Scheme (EPS): It is a social security scheme that was launched in 1995 by the EPFO (Employee Provident Fund Organization). 
   • It makes provisions for pensions for the employees in the organized sector after retirement at the age of 58 years.
   • The benefits of the scheme can be availed only if the employee has provided a service for at least 10 years 
3. Pradhan Mantri Kisan Maan Dhan Yojana (PMKMY): It is a pension scheme for small and marginal farmers having cultivable land up to 2 hectares. 
   • Farmers within the age group of 18-40 years are eligible to get themselves enrolled in the scheme. 
   • The scheme aims at providing an assured pension of 3,000 rupees per month once the farmer attains the age of 60 years.
4. Pradhan Mantri Laghu Vyapari Maan-dhan Yojana (PMLVMY): It is a pension scheme for shopkeepers launched in July 2019. 
   • It assures a minimum monthly pension of 3000 rupees per month to small shopkeepers, retail traders, and self-employed people. A person is eligible after attaining the age of 60 years.
   • The Goods and Services Tax (GST) turnover of the beneficiary should be below Rs.1.5 crore. 
5. National Social Assistance Programme (NSAP): The program extends social assistance to poor households. It covers the aged, widows, disabled, and families where the breadwinner has passed away.

Source: The Hindu

Issues in the Pension system

1. Inadequate amounts: The Parliamentary Standing Committee on Rural Development observed the meagre amount of assistance under the different components of the NSAP. It ranged from 200-500 rupees per month.
2. Huge Financial Burden: The government has to bear a significant economic burden for giving pension amounts to the beneficiaries.
3. Delay in implementation: Delays were noticed in the issue of Permanent Retirement Account Number (PRAN) and the first deduction of NPS contributions. It was observed in CAG’s Performance Audit Report on NPS 2020.
4. Poor Coverage: The Parliamentary Standing Committee on Agriculture observed that only 21.2 Lakh farmers have subscribed to PMKMY. However, the target is to cover 5 crore beneficiaries up to 2021-22.
5. Dismal performance by Nodal Agencies: CAG’s Performance Audit Report found that PFRDA did not fix timelines to upload legacy data and transfer of contributions to the Trustee Bank. This affects the timely transfer. Further, the PFRDA was not aware of the quantum of the amount to be transferred to the Trustee Bank.
   Legacy data: These are essential information that is stored in an old or obsolete format. 
6. No timely update on pension amount: The Parliamentary Standing Committee on Rural Development recommended increasing the pension amount two years ago itself. But the centre didn’t increase the amount.
7. Monitoring Deficit: Various ministries implementing pension schemes fail to constitute the Monitoring and Overseeing Committees. This will also result in poor implementation of pension schemes.
8. Willingness to adopt: The citizens are not enthusiastic about voluntary pension schemes due to faulty design or lack of financial literacy. As per data on January 2020, no one has registered in the PMLVMY scheme from Mizoram and Lakshadweep.

Need of pension system in India

1. Constitutional Mandate: The Pension programmes represents a significant step towards the fulfilment of Article 41 of DPSP. Article 41 directs the State to provide public assistance to its citizens in case of old age, unemployment, sickness and disablement etc.
2. Burgeoning Population: As per a recent UN report, the share of older persons in India is projected to increase to nearly 20 per cent in 2050. This calls for giving due protection to them.
3. Greater Life Expectancy: With the advancement of technology and healthcare, people would be living more and hence pension support would be required for survival.
4. Social Apathy: The growing materialism in society has increased instances of abandonment of parents by children. In such times, the pension can give hope to survive and reduce the suicide rate among the elderly.
5. Dignified Life: Schemes like PMKMY will help small and marginal farmers lead a dignified life in their elderly years by providing due financial support. If such support is not provided, then the disastrous consequences of farmer suicide would occur.

Step taken for improvement in Pension System

1. Coverage Expansion: In 2019, PFRDA permitted Overseas Citizen of India(OCI) to enrol in the National Pension System(NPS) at par with Non-Resident Indians.
2. Low Penalty for Delays: Government subscribers under NPS would be compensated for non-deposit or delayed deposit of contributions during 2004-12 at General Provident Fund interest rates. 
3. More Flexibility: Government sector NPS subscribers were allowed a choice of schemes and Fund/ Asset Managers with effect from 1 April 2019.

Suggestions to improve Pension System

• The government must respond swiftly towards the Parliamentary Committee’s recommendations so that coverage and amount of pension get rationalised.
  • This includes providing reasons in the public domain for poor performance and adequate modification as per the need of beneficiaries.
• Further, the government can implement the CAG’s Performance Audit Report on the National Pension System. It recommended few important steps such as,
  • Establishment of a robust system to ensure 100% coverage
  • Delay in payment should attract compensation
  • Government must identify all cases of legacy contributions, not remitted to Trustee Bank
  • A minimum assured return needs to be paid to the subscriber so that sufficient amount is available after retirement
• Encouragement of Foreign Pension funds should be done for relieving the government of its economic burden.
• The government should focus on the timely and robust implementation of RBI’s National Strategy for Financial Education (NSFE): 2020-2025. This will create a financially aware and empowered India.  

Conclusion

In a nutshell, the focus of pension schemes should be reaching the intended beneficiaries on time along with financial awareness for encouraging adoption. This will help to sustain the elders, widow and other dependent populations efficiently thereby providing them with an opportunity to lead a dignified life.