India's pension regulator is considering a plan that will make it mandatory for employers to automatically enrol their employees into a pension scheme with an option to the subscriber to opt out.
This tactic of "soft compulsion" to increase the pension coverage in India has been proposed after a disappointing response to the government's ambitious Atal Pension Yojana (APY), a fixed benefit scheme that promises subscribers a monthly income of between ' 1,000 and ' 5,000.
"In many countries to increase the coverage under private pension system, besides mandatory pension system to the organized sector, 'soft compulsion', generally known as automatic enrolment in private pensions with an option to the subscriber to opt-out, has been introduced," according to a concept paper by the Pension Fund Regulatory and Development Authority (PFRDA). "Automatic enrolment is somewhere in between the alternative approaches of compulsion/mandatory and voluntarism. It is often therefore called 'soft compulsion'."
The concept paper proposes that wherever an employer-employee relationship can be established, both in the formal and informal sector, the employer should be under an obligation to register all his employees under a pension scheme without any underlying obligation to contribute mandatorily. Persons so registered also have the option to opt out from the pension scheme.
"The aim is to increase coverage and participation under pension/old age income security while preserving individual choice of not doing so," said the concept paper.
Atal Pension Yojana, launched last year, failed to meet its ambitious 20 million enrolment target by December-end. As of 5 February, 1.97 million subscribers had enrolled for the pension programme. A senior PFRDA official said that the idea is at an initial discussion stage.
"This idea has worked well in some countries. We are hopeful that it will help in universalizing pensions in India," the official said on condition of anonymity.
Italy, the US, the UK and New Zealand are some of the countries that have successfully implem e nt e d the auto enrolment option for expanding pension coverage.
The proposal, if implemented effectively, is likely to give the desired push to transform India from a pension-less society to a society where everyone has a retirement safety net. However, the challenge will be to push employers especially in the unorganized sector to enrol their employees, something that experts say will be near impossible. "It is impossible to implement for the unorganized sector who do not have any form of protection. The employees working there do not have even basic rights like leave salary and sickness leave," said N.C. Saxena, a former member of the erstwhile National Advisory Council, an advisory body set up by the United Progressive Alliance government.
In arrangement with HT Syndication | MINT
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