Labour min starts pension sec reforms

first it was the ministry of social empowerment. then, the ministry of finance. now it is turn of the ministry of labour which has started the process of pension sector reforms. the ministry is proposing to broadbase the social security net for the country's 400-million strong labour force by delinking employees provident fund from the employees pension scheme. when this move is combined with the decision to redefine employees provident fund deducting establishments to mean those employing 10 persons instead of 20 at present, the initiative assumes even greater significance. this is because the two measures would have the impact of making participation in epf/pension schemes attractive not only to evading establishments, but also bring the employees of new businesses under the social security net. interestingly, this initiative comes from none other than sharad yadav, the labour minister, better known as the bete noire of labour sector reforms announced in the budget. the delinking of epf contributions from eps is part of the amendments being proposed by the labour ministry to the epf act. these amendments are currently before the central board of trustees of the employees provident fund organisations for consideration. at the meetings held to discuss these far reaching changes, including the most recent one held on december 6, mr yadav, who is also the cbt chairman, has been most persuasive. his goal, as announced at these meetings, is to double the coverage of the epf scheme from 26 million workers now to 50 million workers as soon as possible. the labour ministry's approach for widening the social security net is unique. unlike the other plans on the drawing board, it merely presupposes marginal changes in the epf deduction norms to bring a larger segment of the workforce under the social security net. that perhaps makes it even more workable than most of the other pension plans under consideration, as minor modifications are needed to adapt the existing structure. the modifications required include permitting employees to directly participate in a pension scheme, instead of routing pension savings through a provident fund scheme. for this two things would have to be done. contribution of employers and employees to the provident fund would have to be separated from contribution to the employees pension scheme. secondly, the freedom to choose the scheme in which an employee would like to participate — one of them could also be mandatory — would have to be given to them. the advantage of this change would be that low wage segments of the workforce would be able to participate in a pension plan, since the burden of contribution would go down. the labour ministry has currently set its sight on bringing certain categories of workers such as worker cooperatives, beedi workers, construction workers, self employed etc under the pension fold, but the scheme is bound to be extended to other areas over time. to understand what is being planned, one needs to understand the existing social security structure in place at the moment. strictly speaking, only government employees enjoy pension at the moment. these pensions are non contributory. they come out of the current revenues of the government. in case of other employees, only the organised sector (units employing 20 and more persons) has a pension plan. however, the employee does not directly participate in this pension plan. he pays 12 per cent of his salary every month towards an employees provident fund, which is equally matched by the employer. out the 12 per cent matching contribution to the epf by an employer, four per cent finds its way into the eps. some could argue that since part of the employer's contribution goes into the eps, it is funded by the employer. however, ever since organisations adopted the cost to company concept, the epf and eps have assumed defined contribution schemes, where an employee pays for his retirement benefits. the labour ministry is currently arguing that reducing the burden on the employee of a retirement plan by delinking epf from eps would bring more workers under the social security net. such a net has become essential as organisations rightsize with vrs and mid-life job displacements have become a national reality.

Labour min starts pension sec reforms

FIRST it was the ministry of social empowerment. Then, the ministry of finance. Now it is turn of the ministry of labour which has started the process of pension sector reforms.

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