A slew of conditions and exclusions have made the new PMSYM scheme a difficult selling proposition
Subscribers can, in theory, be part of both PMSYM and APY schemes, but this only adds to the complexity of the system
The government on 7 February notified rules for the Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) scheme, which was announced in interim budget 2019-20 as a pension scheme for the unorganized sector workers.
PMSYM promises a pension of ₹3,000 per month when the subscribers turns 60, in return for fixed monthly contributions starting for as little as ₹55. Unorganized sector workers between 18 and 40 years, and earning up to ₹15,000 per month can join the scheme, which will be launched on 15 February. A slew of conditions and exclusions have, however, been specified, making it a difficult selling proposition. There is little to distinguish it from the existing Atal Pension Yojana (APY) and, in many ways, it is a step backward from APY. Subscribers can, in theory, be part of both schemes, but this only adds to the complexity of the system.
Unorganized sector workers in India can choose between life insurance policies (including Life Insurance Corporation of India policies), PMVVY (Pradhan Mantri Vaya Vandana Yojana), APY and now PMSYM, in order to secure a pension for themselves. They also have the choice of saving their money in Public Provident Fund, mutual funds and small savings schemes such as National Savings Certificates (NSCs) and Kisan Vikas Patras (KVPs). However, these products provide for retirement corpus growth rather than a monthly pension. We have excluded the Employees’ Pension Scheme (EPS) under the EPF Act, 1952, from this list because it applies to organized sector workers.
What is PMSYM?
It is a pension scheme targeted at unorganized sector workers aged 18-40, who are not covered by EPS or centre’s National Pension System, and who are not income-tax assesses. Such workers will get a monthly pension of ₹3,000 after they reach 60. In return they have to make monthly contributions of a specified amount which varies according to their age. At 18 years, it will be as low as ₹55 per month and will be matched by an equal contribution from the central government.
An inferior cousin of APY
The PMSYM structure is almost identical to APY which also gives a guaranteed minimum pension of ₹1,000-5,000 in return for a fixed schedule of contributions. APY is also for people between the ages of 18 and 40, and provides a pension from age 60. However, in other key respects, PMSYM is actually an inferior product. First, APY provides pension ranging from ₹1,000-5,000 per month, while the PMSYM pension is capped at just ₹3,000 per month. This amount, which is already quite low, is likely to be further eroded by inflation over time. Second, PMSYM is only open to those with monthly income of up to ₹15,000, whereas APY contains no such income limit. The limit of ₹15,000 is also incongruous given that Employees’ Provident Fund Organisation is considering increasing the ₹15,000 salary limit for calculating pension under EPS. Third, in APY, you can choose to contribute monthly, quarterly or half yearly, which is of great help to those in the unorganized sector with irregular income. PMSYM only allows monthly contributions. Fourth, APY provides for return of corpus on the death of the subscriber and his spouse. In PMSYM, workers only get a pension and do not accumulate a corpus for their family. On the death of the worker and his/her spouse, the corpus is forfeited to PMSYM. Fifth, it will be directly managed by the government unlike APY, which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
There is only one parameter on which PMSYM scores over APY. It provides for equal government co-contributions to all subscribers. This brings down the amount needed from the subscriber’s pocket. APY also provides for government co-contributions, but only for those who joined before 31 March 2016, and who were not taxpayers , or beneficiaries of any other social security. As a result, the monthly contribution at age 30 in PMSYM is ₹55 against ₹126 in APY. However, the two cannot strictly be compared because APY provides for return of the accumulated corpus to the subscriber’s family, while the accumulated corpus is forfeited to PMSYM fund.
Why introduce PMSYM?
PMSYM is all set to come under the labour ministry. In APY, each subscriber’s contributions are maintained in a separate account against a unique number (Permanent Retirement Account Number). No such system has been set up for PMSYM, bringing it directly under government control. Official have indicated that this may have been an outcome of a turf war between the labour ministry and PFRDA.