New Delhi: Looking to bring the informal sector under pension coverage, the board of the Pension Fund Regulatory and Development Authority (PFRDA) has approved a concept note wherein employers will need to automatically enrol workers under the Atal Pension Yojana.
However, the employer will not be bound to make a contribution for the workers and neither will he be penalized—at least initially—for failing to enrol the workers.
The concept note has been put up on the regulator’s website for feedback from stakeholders.
PFRDA initially plans to target Anganwadi workers, accredited social health activists, construction workers, those working in small-scale industries and non-governmental organizations where the government is a major employer.
To make the product more attractive, the pension fund regulator is also proposing to link insurance schemes like the Rashtriya Swasthya Bima Yojana to the pension scheme.
Mint had reported in February that PFRDA was mulling this to bring more people under this social security safety net.
PFRDA is contemplating the tactic of “soft compulsion” after schemes targeting the informal sector like the Swavalamban initiative and the Atal Pension Yojana did not see the desired response.
Atal Pension Yojana, launched last year, failed to meet its ambitious 20 million enrolment target by December-end. As of 7 September, only 3.05 million subscribers had enrolled for the pension programme.
The proposal, if implemented effectively, is likely to give the desired push to transform India from a pensionless society to a society where everyone has a retirement safety net.
Italy, the US, the UK and New Zealand are some of the countries that have successfully implemented the auto-enrolment option for expanding pension coverage.
However, the challenge will be to push employers, especially in the unorganized sector, to enrol their workers. PFRDA is hoping the government will take the lead.
“We are hoping that the government will bring out a notification that will push those who work for the government to auto-enrol workers,” said B.S. Bhandari, member of PFRDA.
PFRDA is also planning to give more investment options to the subscribers.
Private sector subscribers can now choose to invest in an aggressive life cycle fund wherein the equity allocation will be 75% till the age of 35, or a conservative life cycle fund where the equity allocation will be 25% till the age of 35 years.
Hemant Contractor, chairman of PFRDA, said the regulator is still in talks with the government to allow government employees to also have a say in the allocation of their funds between equity, government bonds and corporate bonds.
“Hopefully, a decision will be taken soon,” he said.