Atal Pension Yojana: A boon for the unorganised sector

By Suganya Balakumar

As of 30th August 2017, the Atal Pension Yojana (APY) has reached a subscriber base of 62 lakh in a time span of two years since its launch. The objective of the Pension Fund Regulatory and Development Authority (PFRDA) is to provide pension coverage to maximum possible population uncovered by any pension scheme.

The unorganised sector

The Atal Pension Yojana is a pension scheme for the workers in the unorganized sector. National Commission for Enterprises in the Unorganized Sector (NCEUS) defines the unorganized sector to consist of “small-scale, self-employed activities (with or without hired workers but less than 10 workers), typically at a low level of organization and technology, with the primary objective of generating employment and income. The activities are usually conducted without proper recognition from the authorities, and escape the attention of the administrative machinery responsible for enforcing laws and regulations.”

These workers include street vendors, personal maids, drivers, tea shop workers, etc. This social security scheme was launched in June 2015, as an upgrade to the Swavalamban Yojana NPS Lite. It aims at helping the unorganized sector workers to save money for their old age while they are working and it guarantees returns after their retirement. These workers are expected to make a fixed monthly contribution based on the monthly pension expected. The contribution can start after the age of 18 till 40 and the contribution ends and pension starts at the age of 60. A co-contribution of 50% from the Central government (up to Rs. 1000 per annum, for 5 years) is also promised for those individuals who joined APY before the end of 2015. Based on their contributions, subscribers would receive a fixed pension of Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs. 4000 or Rs. 5,000 per month.

Security in the life of the poor

A major challenge for the Indian economy is the growing number of informal jobs and the growing informalization of formal sector jobs. The size of the informal economy is growing while 84% of the Indian labour force is informally employed. A poor person working in the informal sector gets no formal benefits from the government. The APY ensures that these workers get guaranteed pension of Rs. 1000 to Rs. 5000 every month, based on their subscription scales.

One of the major advantages of the scheme is that the subscriber can increase or decrease the pension amount during the accumulation phase, once a year. The scheme ensures flexibility in situations of uncertainty. In case of death of the subscriber, the pension amount is transferred to his/her spouse till their death. After the demise of both subscriber and spouse, their nominee will receive the pension amount that was accumulated by the subscriber. While in a situation where the subscriber dies before 60 years of age, the spouse could either choose to continue or exit the scheme.

The pros and cons

This scheme ensures that all unorganized sector workers who do not avail any social security schemes are benefited. The drawback of this scheme is that it is moving from a clean product structure of the National Pension System (NPS) to a fuzzy product structure with sub-optimal returns. The scheme puts out a number that the subscriber will get, rather than providing an indicative return to the subscriber. Secondly, post inflation, the values of the pension amount will drop. For example, in 40 years, the value of Rs. 5000 will be Rs. 710.

Also, this scheme would take us back to the realm of the defined benefit in pensions. Defined benefit pension system is the traditional way of guaranteeing an assured pension. The modern way is the defined contributions system, where the pension is calculated based on the subscriber’s contributions and the fund’s returns. Debates have shown that the defined contribution system is a better system, and it was made available to all workers through the NPS in May 2009. The government should aim at overcoming these drawbacks.

Therefore, the large unorganized sector population in our country has led to the difficulties in targeting them through government schemes. The Atal Pension Yojana helps in targeting these people and would go a long way in providing social security and stabilizing the lives of the informal workers.

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