Pensions in India

Source: Wikipedia, the free encyclopedia.

India operates a complex pension system. There are however three major pillars to the Indian pension system: the solidarity social assistance called the

Employees' Provident Fund Organisation of India for private sector employees and employees of state owned companies, and several voluntary plans.[1]

Non-contributory minimum pension

Main article: National Social Assistance Scheme

The National Social Assistance Scheme is a limited social safety net for the elderly poor and disabled who falls under the official poverty line. It is a non-contributory

below the poverty line.[2]
It is funded through the general taxation.

National Pension System

Main article: National Pension System

Civil Servants who joined service before 2004 are entitled to the Civil Service Pension Scheme and the General Provident Fund. These were established in 1972 and 1981 respectively. It was a defined benefit system that the employees did not contribute to and the pension was funded through the general state budget. To qualify for a pension, one must have been in service for at least ten years and the pensionable age was 58. The retired employee received 50% of his/her last salary as the monthly pension. Due to the severe financial burden that this system was placing on government finances that it was abolished for new civil service employees from the year 2004 and replaced by the

Old Pension Scheme (OPS) for all its employees who joined after 1 January 2004. The employee contributes 10% of his gross salary to the system while the employer contributes a matching amount. At the official age of retirement, the employee can withdraw 60% of the amount as a lump sum while 40% needs to be compulsorily used to buy annuity that will be used to pay a monthly pension. The system tries to achieve a target of 50% of the last salary of the employee. This system has been made compulsory for all civil servants but voluntary for others. In the General Provident Fund Scheme, the employee needs to contribute at least 6% of his gross salary and there is a guaranteed return of 8%. The employee can withdraw the lump sum amount when he/she retires.[4]

Mandatory state provident fund and pension provision

Main article: Employees' Provident Fund Organisation

This mandatory scheme is part of the

Social Security system in India that covers all employees of the private sector and employees of state owned companies. It is run by the social security body Employees' Provident Fund Organisation (EPFO). In this system, an employee contributes 10% to 12% of his monthly salary here and his employer contributes a matching amount, with a total contribution of 20% to 24% of the employee's gross salary, while the state contributes an additional 1.16%, which makes it a total of 25.16% of the employee's gross salary. The contributions go towards the mandatory provident fund, the mandatory pension scheme and a mandatory disability and life insurance scheme. The employee withdraws the lump-sum amount deposited for the provident fund along with the interest accumulated once the employee reaches the statutory retirement age. In case of death or permanent disability during work, the dependent gets a monthly pension throughout their life.[5] Most retired employees buys lifetime annuity or pension plan with the lump-sum amount from state-owned banks or insurance companies which provides them with a monthly pension amount that's close to 50% of their last salary for a lifetime.[6]

Voluntary Schemes

Government of India launched

Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) in February 2019 to provide an assured pension of ₹3,000 (US$38) per month to unorganised workers.[7]
Several private companies additionally provides private pension plans for their employees which are voluntary.

See also

References

[1]

  1. ^ India Social Pension Archived 2012-05-01 at the Wayback Machine. GlobalAging.org. Accessed April 29, 2012.
  2. ^ "National Social Assistance Programme (NSAP)|Ministry Of Rural Development|Government Of India". NSAP. Retrieved 11 August 2022.
  3. ^ "Govt to scrap pension scheme for new staff - Times of India". The Times of India. 16 October 2003.
  4. ^ https://www.policybazaar.com/life-insurance/pension-plans/articles/how-general-provident-funds-works/ [bare URL]
  5. ^ "EPFO || For Employees". Epfindia.gov.in. Retrieved 11 August 2022.
  6. ^ "Retirement Planning: How much money do you need to retire comfortably in India?".
  7. ^ {{citation |title=Good News! Unorganised workers can now subscribe to this pension scheme |url=https://www.shaleshyadav.com/2020/07/sspy-sspy-pension-list-2020-sarkari.html?m=1%7Cwork=[[government pension yojna}}
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