Sunday, June 24, 2012


• 25 Jun 2012

• Hindustan Times (Delhi)

• Vivek Sinha


The labour ministry has proposed a minimum pension of R1,000 a month for all those who subscribe to the Employees’ Pension Scheme (EPS). If implemented, the move will benefit nearly 3 million workers engaged in small and medium enterprises with higher retirement benefits.

Under the EPS 95 scheme, which has been in operation since 1995, a part of the employees’ provident fund contributions are set aside into a separate corpus which they can claim as pension after retirement, either as a lump sum or as a monthly payment.

The amended scheme, for which the labour ministry has moved a cabinet note, would imply that the Centre may have to subsidise the fund through a budgetary grant to raise the pension level for all those who, as per their contributions, are eligible for a much lower payout.

Alternatively, it may have to adopt a model of a rolling debt by which it pays new retirees by dipping into the pool of highincome savers who have several years to reach the age of superannuation.

About 3.6 million individuals currently draw their pension from this scheme that has a corpus of R1.95 lakh crore

Of them, 83% or nearly 3 million draw a pension of less than R1,000.

More than a quarter (27%) or 972,000 of the eligible pensioners are engaged in seasonal manufacturing sectors such as bidi-making units, tea gardens, mining and quarrying activities with pension entitlements below R500 a month. In some cases, the pension entitlements are as low as R4 per month.

“EPS is a contributory fund, and low pensions mean that the monthly contributions by a member to the fund have been extremely low,” a labour ministry official told HT, explaining low-pension entitlements.

Dipping into the pool of highincome younger savers to subsidise current low-income retirees, however, carries the risk of creating a fragile financial structure.

“If the proposal of a minimum R1,000 per month sails through, then their monthly pension will have to come from the amounts deposited by other employees,” the official said.

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