SOCIAL SECURITY AND PENSIONS IN INDIA

Transcription

1 SOCIAL SECURITY AND PENSIONS IN INDIA PRESENTATION APRIL 2-3, 2003 COLOMBO (SRI LANKA) U.KSINHA MINISTRY OF FINANCE, GOI, NEW DELHI

2 FRAMEWORK OF THE PRESENTATION BASIC FACTS ON INDIAN ECONOMY COMPONENTS OF THE EXISTING SYSTEM GOVERNMENT SERVANTS ORGANISED SECTOR SELF EMPLOYED UNORGANISED SECTOR NEW INITIATIVES AND ISSUES

3 BASIC FACTS-INDIA India is the second most populous country in the world with mil(2000) and mil (1994) showing a growth rate of 1.95 percent per annum. The people above age 60 years are growing at a much rapid pace- annual rate of growth of 3.8 percent per annum (75.9 million in 2001 and 55.3 million in 1991) Life expectancy at birth for females is years while for male it is years

4 BASIC FACTS-INDIA Out of a total labour force of million ( year 2000), the workforce was million. The figures in 1994 was and million respectively. Number of poor (below poverty line or BPL) is 260 million ( ) which was 26% of total population. In about 320 million (36%) people below poverty line. Th per capital income (at prices) was Rs as against Rs in

5 BASIC FACTS-INDIA In the year 2001 there were 3.26 million central government employees,7.42 million employed by state governments, 6.19 million in the Quasi government bodies and 2.21 million in local bodies. Only 27 million (8-9 percent of workforce) is employed in private organized sector in year Persons in the organized sector are covered under one or another schemes providing old age income security. About 11% of working population covered.

6 Existing Pension system in India Government Employees Workers in the organised sector Voluntary Schemes National Social Assistance Programme (NSAP) for Poor and Elderly.

7 Government Employees Three components of retirement benefits Civil Services Pension Schemes ( DB) Civil Services Provident Fund ( DC) Gratuity to Civil Servants ( DB) Issues: Central government - Pension liability increased from 0.6 % of GDP in to 1.66% in with pensioners to employees ratio at Sate government- annual average increase in pension expenditure in the period to was 27.1%. 10% of the revenue receipts of the States were preempted by pension expenditure.

8 Workers in the organised sector Employee Provident Fund (EPF) Employee Pension Scheme (EPS) Gratuity to employees Special Provident Funds such as Coal Miners Provident Fund, Assam Tea Plantation Provident Fund etc. Issues: Lack of individual choice and portability Non-sustainability of the pension schemes such as EPS High incidence of administrative cost and low real rate of returns) Management issues

9 Voluntary Schemes Public Provident Fund - Legal Coverage All individuals. about 2.76 million account holders. Private Pension plans- Legal Coverage All employees. Effective Coverage about 0.2 percent of labor force. Personal Pension plans from annuity providers Legal Coverage All individuals. Effective Coverage about 0.2 percent of labor force.

10 National Social Assistance Programme (NSAP) for Poor and Elderly 3 components of NSAP: National Old Age Pension Scheme (NOAPS). National Family Benefit Scheme. National Maternity Benefit Scheme). Under NOAPS elderly persons (over 65 years) who are destitute in the sense of having no regular means of subsistence from their own source of income or through financial support from family members or other sources. Amount of pension is Rs. 75/- per month per beneficiary. The state government may add to this amount from their own resources. For , Rs 571 crore for NSAP. From NSAP scheme has been transferred to the State Plans.

11 Debate/initiatives in recent years Central Government Employees- Budget envisaged a new pension scheme based on defined contribution basis for the new entrants in the Government service- a High Level Expert Group (HLEG) that suggested a new hybrid scheme that combines contributions from employees and the Union Government on matching basis, on the one hand, while committing to the employees a defined benefit as pension. Unorgaised Sector- OASIS (Old Age Social and Income Security) project was commissioned that recommended a defined contribution scheme based on Individual Retirement Accounts with full portability throughout India. Banks, Post Offices etc., to serve as Points of Presence (POPs) where the accounts could be opened or contributions deposited.

12 Tax treatment in Pension Sector Civil Service Pension Scheme (CSPS)- Pension benefits are taxable as this would form a part of the gross annual income Civil Service Provident Fund (GPF) Contributions receive tax benefits up to 20% of contributed subject to a maximum of Rs. 60,000 per annum Gratuity to Civil Servants No tax benefits

13 Tax treatment in Pension Sector Employees Provident Fund (EPF) Employees contributions receive tax rebates/credits/ relief up to 15% of the amount contributed subject to a maximum of Rs. 70,000 per annum.lump sum withdrawals are tax free. Employees' Pension Scheme (EPS) Same as EPF. Pension benefits or annuities are taxable. Gratuity to employees The Act requires employers to pay a non-taxable lump sum amount upon retirement, death or termination.

14 Tax treatment in Pension Sector Public Provident Fund Tax rebate of 15% is provided on the contribution up to Rs. 60,000 per annum ; Withdrawals are tax free Private Pension Plans Contribution to these schemes by employers are tax deductible up to a limitemployee contribution attract tax credit of 15% of the contribution, up to a maximum of Rs. 60,000. However, annuity payments are taxable as income and commuted value up to 1/3 rd or half (depending upon whether gratuity is payable or not) is tax free. Personal Pensions Contribution to these schemes are tax exempt up to a maximum of Rs. 60,000. Annuity payments are taxed as income. However, commuted value (25% of accumulation) is tax free.

15 SOCIAL SECURITY IN INDIA Targeted public distribution system (TPDS): A scheme of distribution of food grains under 2 tier system to households below poverty line (BPL) and above poverty line (APL). BPL gets food grain at highly subsidized prices and are entitled to 10kgs of food grain per month. The scheme covers about 600 lakh (6 crore) poor families.

16 SOCIAL SECURITY IN INDIA Antyodaya Anna Yojana (AAY): In order to make TPDS ( 6.52 crore persons under TPDS) more focused for population ( about 1 crore)which is unable to meet 2 square meal a day, PM launched this scheme on These identified families are given 35 kgs of food grain per family per month at highly subsidized rates ( Rs. 2 per kg for wheat and Rs. 3 per kg for rice). The prices for BPL families are Rs per kg for wheat and Rs per kg. For rice.

17 New Initiatives on Pension: Budget Announcement

18 Budget Announcement The New Pension Scheme (NPS) apply only to new entrants to Government service, except to the armed forces, and offer a basket of pension choices. It will also be available, on a voluntary basis, to all employers for their employees, as well as to the self-employed.

19 Budget Announcement Varistha Pension Bima Yojana- it s a monthly pension scheme available to any citizen above 55 years of age. Payment of a lumpsum amount entitles the person for lifetime monthly pension benefits calculated at 9% p.a ( minimum pension Rs 250 p.m and maximum is Rs.2500 p.m.). The difference between actual yield earned by LIC and the assured return to be filled by GOI. Upon demise of the subscriber initial deposit to be returned to the spouse/nominee.

20 Budget Announcement NPS based on defined contribution to be shared equally in the case of Government employees between the Government and the employees. No contribution from the Government in respect of individuals who are not Government employees. Portable, allowing transfer of the benefits in case of change of employment- both within the Government and outside. Individual pension accounts with Pension Funds. A new and independent Pension Fund Regulatory and Development Authority (PFRDA).

21 Budget Announcement Health Insurance Scheme: community based universal health insurance scheme. A premium of Rs.1 per day for an individual ( Rs. 1.5 for family of 5 and Rs. 2 for family of 7) will entitle eligibility to get medical reimbursement up to Rs. 30,000 towards hostipalisation, a cover for death due to accident for Rs, 25,000 and compensation due to loss of earning at the rate of Rs. 50 per day up to a maximum of 15 days. For below poverty line families GOI to contribute Rs. 100 per year towards their annual premium.

22 Budget Announcement Antyodaya Anna Yojana : Existing Antyodaya Anna Yojana expanded to cover additional 50 lakh families raising the total coverage to more than a quarter of all BPL families during

23 Contours of the NPS Based on defined contribution. Concept of first tier (non-withdrawable) and a second tier (withdrawable account). Use of existing network of bank branches and post offices etc. to collect contributions central record keeping infrastructure. Six or more pension fund managers (PFMs) to offer three basic schemes: `Safe Income', `Balanced' and `Growth. One PFM to be in Public Sector.

24 Contours of the NPS At age 60, the individual would be mandatorily required to purchase an annuity (from an IRDAregulated life insurance company) so as to achieve a replacement rate of atleast 25%. Beyond that, the individual would receive a lumpsum of accumulated pension wealth, which he would be free to utilize in any manner.

25 Contours of the NPS Pension contributions and accumulation would be tax-exempt upto a certain limit, but benefits would be taxed as normal income. ( tax preference only in non-withdrawable A/C) Assets under both A/Cs would be managed through exactly same procedures. The employee would be free to withdraw his money anytime from withdrawable A/C. This withdrawable account does not constitute pension investment, and would attract no special tax preference

26 Contours of the NPS Pension Regulatory and Development Authority (PRDA) would function independently. This could be created through an executive order initially. The authority to be located in New Delhi.

27 Architecture Employer

28 Regulatory issues Regulatory jurisdiction of PFRDA. Overlap of regulation between PFRDA and IRDA? Pension Schemes presently being provided by Insurance Companies under IRDA. Existing companies can continue or not? Who will regulate them?

29 Tax Issues Tax treatment of contribution, accumulation and benefit distribution. Contribution and accumulation to be tax exempt while benefit distribution to be taxed. (EET regime). Limit of the benefit for tax preference has to be made explicit. Tax treatment of the entities connected with new pension system

30 Market related issue Likely rate of return - comforts to participants. Removing impediments in the growth of long term hedging instruments. A guarantee mechanism for safe income strategy through private financial markets.

31 THANK YOU VERY MUCH!!!