Give workers the National Pension Scheme as an option

Trade unions are wrong to block the proposal to let workers of the employees pension scheme (EPS) switch to the National Pension Scheme (NPS). Ideology cannot override common sense as workers need better returns and must have the option to take control over their retirement savings. The EPS, funded by the Centre that contributes 1.16% of the members’ monthly wage and the employer who contributes 8.33%, offers paltry pension income. Open-ended financing of the scheme by the Centre is simply unsustainable and imprudent. The way out, as the finance ministry has rightly proposed, is to give workers the choice to move to the NPS. Surely, this will be more selfsustaining than a defined benefit scheme like the EPS, and give them superior returns. Workers wanting a bigger retirement nest will have the flexibility to invest more than the contribution rate and earn a higher pension income. Ideally, the EPS should be merged with the NPS.

Similarly, trade unions should see reason and allow workers to move their provident fund accounts from the Employees Provident Fund Organisation (EPFO) to the NPS that offers average yearly returns of 12%, even with its relatively small corpus, even as the EPFO scrounges around in its accounting system’s black holes to come up with a return of 8.5%. This is a much better way to protect workers’ interests than force them to stay with the EPFO whose fund management is opaque and return is suboptimal. Unions should stop trying to wangle, say, subsidy to pay a higher return on the EPF ahead of the 2014 polls.

However, the NPS must be marketed better. It is not enough for the pension regulator to ask the government for funds to launch pro-NPS advertisement campaigns. The need is to offer higher incentives to distributors of NPS accounts.