The central government is preparing to take a big step towards strengthening the retirement security for crores of employees of the country. A plan is being made to introduce a new contributory pension scheme under EPFO 3.0. The biggest benefit of this proposed scheme can be availed by those people who are not yet covered under the Employees’ Pension Scheme (EPS). These include gig workers, platform workers, unorganized sector employees and many high salary employees.
According to government officials, this scheme will be part of the next phase of reforms of EPFO. Along with this, EPFO’s digital platform will be further modernized and it will be linked to Core Banking Solution (CBS), so that members can get better and faster services.
How will the new pension scheme work?
Under the proposed scheme, every member will have a separate pension account on the digital platform of EPFO. Contributions received from employees, employers, government and other sources will be deposited in this account. The deposited amount will be invested in government backed long term safe investment schemes and approved financial instruments. Interest will also be added on it every year, so that a big fund can be created by retirement. On completion of 60 years of age, the member’s deposited amount i.e. Target Retirement Sum (TRS) will be converted into monthly pension based on the interest rate and annuity rate applicable at that time.
You will get a chance to take a decision at the age of 55
The government wants to make this scheme more flexible than traditional pension schemes. According to the proposal, at the age of 55, the member will be able to decide how he wants to use his retirement savings.
Till then this scheme will work like Employees Provident Fund (PF) and money will be continuously deposited in the account. At the time of retirement, if the member wishes, he can convert this amount into annuity or can withdraw money as per his need every month through Systematic Withdrawal Plan (SWP).
Smart digital dashboard will be available
Under EPFO 3.0, members will also get a smart digital dashboard. In this, they will be able to see how much contribution has been deposited till now, how much is the existing corpus, how much more will have to be invested to reach the target retirement (TRS) and how much can be the estimated pension till retirement.
Members will also be able to change the TRS target as per their need. After this the system will automatically calculate the new contribution. Apart from this, facility to compare different investment and pension options will also be available.
How will it be different from NPS?
Government officials say that this scheme will be different from the National Pension System (NPS). NPS is primarily an annuity based scheme, whereas the new pension scheme will give more flexibility to the members. For example, if a member has a corpus of Rs 1 crore at the time of retirement and is getting 8% interest on it, then he can take only the amount equal to the interest as pension every month. This will keep the principal amount safe. Whereas if the member wants more pension in the beginning, then he will be able to withdraw the basic amount also. Later, if the withdrawal is reduced, the interest will be added to the principal amount again, which will increase the chances of getting more pension in future.
The family will also get a protective cover
In the proposed plan, not only the safety of the employee but also his family has been taken care of. The government is considering creating a Family Benefit Fund, through which after the death of the member, his/her spouse, children and orphans will also be able to get pension benefits.
Special focus will be on gig workers and unorganized sector
The aim of the government is to bring all the organized and unorganized sector employees of the country under the ambit of social security. In the new scheme, contributions can be taken from many sources like employees, employers, government, gig and platform companies (aggregators) and CSR funds. Under the Social Security Code, 2020, gig and platform workers have already been included in the scope of social security. Now this scheme can prove to be an important step towards giving them regular pension after retirement.
Crores of employees can get benefits
About 55 crore people are part of the workforce in India. Of these, about 41.8 crore employees work in the unorganized sector, who do not have any kind of regular pension system. Apart from this, many employees getting salary more than Rs 15,000 are also not able to avail the benefits of the existing EPS. In such a situation, this new pension scheme proposed under EPFO 3.0 can play a big role in providing financial security to crores of employees after retirement. However, at present this proposal is under consideration and its official announcement or implementation date has not been revealed yet by the government.
