The Indian government is said to be preparing a Universal Pension Scheme (UPS) that would be available to all Indians, including unorganised sector workers.

The move, as per Labour Ministry sources, seeks to rationalise the pension and savings system of the country and ensure that all workers in all sectors, including the self-employed, have access to a stable retirement scheme.

The scheme, now termed the ‘New Pension Scheme’, will not abrogate the existing National Pension System (NPS) but exist as a standalone, voluntary option. It will aim to bring together a number of existing pension schemes into a single, simplified scheme to ease retirement savings to citizens.

Why a Universal Pension Scheme?

Indian pension coverage has long been decentralized, with just a segment of the population, primarily government and corporate workers, enjoying organized retirement schemes.

Employees in the unorganised segment, like casual labourers, domestic workers, and gig economy workers, don’t have extensive coverage under pension schemes. Even schemes like Atal Pension Yojana (APY) and Pradhan Mantri Shram Yogi Maan-Dhan Yojana (PM-SYM) are restricted by eligibility conditions and limited coverage.

A universal pension scheme may address these shortfalls by:

  • Providing a universal platform for all workers, salaried, self-employed, and employees in the informal sector.
  • Providing flexibility, as the contributions would be voluntary with no compulsory deductions from salaries.
  • Promoting long-term savings by workers who are presently out of the formal pension system.

Key Features of the New Pension Scheme

Though the proposal is in the process of being drafted, sources state that the new pension scheme will include the following aspects:

Voluntary Contributions

Unlike the Employees’ Provident Fund (EPF), which involves employer and employee contributions, this scheme will be completely voluntary. People will contribute as per their ability.

Government’s Non-Contributory Role

Unlike some pension schemes where the government provides a matching contribution (such as in PM-SYM), the UPS will not involve government funding. It will function purely as a self-funded retirement savings plan.

Likely Integration of Existing Schemes

To prevent duplication and wastage, some of the current pension schemes can be combined into this one universal pension scheme. But sources make it clear that the National Pension System (NPS) will not be combined.

Open to All Citizens

In contrast to EPF (for salaried workers only) or APY (for certain income groups only), the new scheme is likely to be open to all Indian citizens, irrespective of the nature of employment.

Regulatory Framework and Consultations with Stakeholders

Stakeholder consultations with labour representatives, insurance companies, and financial experts will be carried out by the government prior to initiating the scheme in order to finalize the proposal.

How Does It Compare to Other Pension Schemes?

The proposed Universal Pension Scheme aims to provide pension benefits to all citizens on a voluntary contribution basis, though specific withdrawal rules are yet to be determined. In contrast, the National Pension System (NPS) is available for individuals aged 18 to 70, offering voluntary contributions under Tier-I and Tier-II accounts, with market-linked returns.

NPS allows 60% tax-free withdrawals upon retirement, while the remaining 40% must be used to purchase an annuity. The Employees’ Provident Fund (EPF) is a mandatory scheme for salaried employees, with both employer and employee contributions, offering a fixed interest rate and partial withdrawal options before retirement.

Meanwhile, the Atal Pension Yojana (APY) is designed for unorganised sector workers, requiring fixed contributions based on a chosen pension target, with government co-contributions for low-income individuals. Unlike NPS and EPF, APY ensures a fixed pension ranging from ₹1,000 to ₹5,000 per month, though withdrawal flexibility is limited before the age of 60.

The largest differentiating aspect of the UPS is its voluntary and open-to-all nature, which makes it a popular choice for those who do not have access to formal pension schemes currently.

What This Means for India’s Workforce

1. Gig Economy and Self-Employed Workers Finally Get a Pension Option

With the increasing number of gig workers (Swiggy delivery personnel, Uber drivers, freelancers), India has experienced an increase in non-employer-supported savings workers. The new plan may prove to be a life-saver for them.

2. Rising Culture of Retirement Savings

India historically has low pension coverage, particularly in rural pockets. A basic, universal plan may lead more citizens to initiate retirement savings.

3. Unorganised Workers’ Financial Independence

Construction workers, street vendors, and home workers tend to survive beyond their working years with no financial support. This scheme gives them a cushion.

Challenges and Concerns

Although the concept of a Universal Pension Scheme has a lot going for it, there are many questions surrounding it:

  • Will people save voluntarily? As contributions are not mandatory, take-up could be low unless tax relief or employer contribution is introduced.
  • What about returns and withdrawal conditions? In contrast to EPF (which provides guaranteed interest), UPS could have market-linked returns, which could be a concern regarding volatility.
  • Will current schemes such as APY be phased out? If pension schemes are consolidated, some recipients will be uncertain about their current benefits.

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