Mint Explainer: What is a social security agreement?

Besides negotiating easier market access for various goods and services, the two sides are discussing a bilateral investment treaty and a social security agreement for expatriate workers and professionals. 

A social security agreement with the UK has been on the table for a few years. India has been seeking a similar agreement with the US for almost two decades, with little success. Discussions on such agreements may not be included in trade talks with the European Union as India has signed bilateral agreements with most of its members, including France and Germany.

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Social security agreements, also known as double contribution convention agreements and totalization agreements, are important in an era of increased labour mobility. They protect the contributions of overseas workers to the social security schemes of host countries.

The UK has committed to working out an agreement, but the US has merely said it would continue the discussions. A 2030 Roadmap for India-UK Future Relations, published on 4 May 2021 after a virtual meeting between India's Prime Minister Narendra Modi and his erstwhile counterpart Boris Johnson, stated that the UK was committed to a joint dialogue with India concerning the possibility of signing a social security agreement. 

The joint India-US statement dated 23 June 2023 during Modi’s visit to the US read that the two leaders (Modi and then US president Joe Biden) “reaffirmed the intent to continue ongoing discussions concerning the elements required in both countries to enter into a bilateral social security totalization agreement". 

Commerce minister Piyush Goyal has said a deal with the US was unlikely in the short term.

Mint explains the significance of bilateral social security agreements given the increased mobility of workers and professionals between countries.

What is the purpose of a social security agreement?

Most countries require salaried individuals to contribute a portion of their monthly earnings to social security schemes. In India, the deducted amount is deposited into schemes such as the employees’ provident fund (EPF) and employees’ pension scheme (EPS) accounts. Elsewhere in the world, the contributions (also called taxes) go into retirement funds, as in the US, or mandatory national insurance in the UK.

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When an employee of an Indian company is sent to work overseas on an assignment or secondment, she continues to contribute to EPF/EPS as required by law. However, many host countries require such expatriate workers to contribute to the social security schemes of that country. This results in dual contributions, burdening the expatriate worker and her employer. 

Often, such employees do not benefit from these contributions as they return to their home country without fulfilling the criteria (such as contributing for 10 years) to be eligible for benefits. Restrictions on withdrawals also mean that the contributions remain in the host country. Indian companies and their employees have billions stuck with the US treasury.

Such a situation can be avoided when there is a bilateral social security agreement between the home and the host country—expatriate workers would be required to contribute to the scheme in just one country.

What is the benefit of having bilateral social security agreements?

Once two countries enter a bilateral and reciprocal social security agreement, individuals sent on temporary assignments to the other country can avoid dual contributions to social security schemes. Such agreements usually address three issues: elimination of dual contribution or detachment, exportability of benefits, and totalization of benefits.

Thus, expat workers are exempted from contributing to the social security schemes of host countries if they contribute to the home country's social security schemes. This lowers their financial burden. If the worker has or is contributing to the schemes of the host country, the provision on exportability of benefits in the agreement would allow the individual to export the benefits, such as a pension, to her home country on completion of the assignment or retirement. Totalization of benefits allows such workers to combine the service period in the host country and contributions made to social security schemes with that in the home country to determine eligibility for receiving benefits.

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The agreement will relieve the vast army of Indian tech workers in countries such as the US and the UK, individuals working with professional services firms such as law and accounting firms sent on secondment to network firms, and senior executives of multinational companies on overseas postings.

Which countries have entered into a social security agreement with India?

India has already signed these bilateral agreements with 20 countries, 14 of which are European. They include France, Germany, Switzerland, the three Scandinavian countries, and the three Benelux countries. Also, agreements have been signed with Japan, South Korea, Australia, Brazil, Canada, and Quebec. The text of the agreements varies depending on the negotiation, and some do not provide for totalization. Most of these agreements allow expat workers to contribute to the social security schemes of their home country for up to 60 months.

The first social security agreement was signed with Belgium in 2006 and made operational in 2009. The last agreement was signed with Australia in November 2014.