New Delhi, Feb 28: Pension and insurance firms are expected to cobble a slew of schemes for the common man.
Finance minister Jaswant Singh said the restructured pension scheme for new central government employees and general public was ready. Earlier, finance minister, Yashwant Sinha had announced a roadmap to this scheme in 2001.
Singh said, “The scheme will apply only to new entrants to government service, except to the armed forces, and upon finalisation, offer a basket of pension choices. It will also be available on a voluntary basis to all employers for their employees, as well as to the self-employed.”
When introduced, the new pension scheme will be based on defined contribution and shared equally between in the case of government employees between the government and the employees.
However, there will be no contribution from the government extended to non-government employees.
“The new pension scheme will be portable allowing transfer of the benefits in case of change of employment and will go into ‘individual pension accounts’ with pension funds,” said Singh.
The finance ministry will oversee and supervise the pension funds through a new and independent Pension Fund regulatory and Development Authority.
The finance minister has implemented the directions on “life time concerns” given by Prime Minister Atal Bihari Vajpayee by way of introducing the pension scheme.
The government has been considering three alternate models: the first is a mandatory system that will pay out a minimum subsistence pension to all for which the state makes a substantial contribution.
The second, also a mandatory one for the formal sector, works on the pay as you go principle; the third model, which has been accepted as a non-mandatory pension scheme, will cover both formal and informal sectors and will be privately managed with cross subsidisation.
Most members of Vajpayee’s Cabinet have favoured the third model, which could work with low monthly contributions for those from the weaker sections of the society and have a tag on disability cover for those workers who have to be laid off due to major illness or accidents.
The new pension policy for the middle class and poor is also being viewed politically as part of a bid by the BJP to try and brush off the tag of being just pro-business.
It is a tag that seems to have re-inforced in public minds after last year’s budget increased income tax rates and slashed various tax sops for the middle class even as it opened up most sectors to up to 100 per cent foreign investment and reduced taxes on multinationals.
Sunil Sharma, chief operating officer, Max New York Life Insurance Company said, “The creation of the Pension Fund Regulatory and Development Authority will open the doors to pension reforms. It is an important step and we are confident that the new authority will develop the market and help and guide the new entrants into the pension market and help the industry grow in the manner that IRDA has done.”
He added, “The special pension policy to be launched by LIC with 9 per cent guaranteed returns is a notable gesture and will undoubtedly make pensions popular.”
In addition, the finance minister has offered health protection for the large unorganised sector by encouraging public sector general insurance companies to design a community- based universal health insurance scheme during 2003-04.
Under this scheme, a premium equivalent to Re 1 per day (or Rs 365 per year) for an individual, Rs 1.50 per day for a family of five and Rs 2 per day for a family of seven will entitle them to get reimbursement of medical expenses up to Rs 30,000 towards hospitalisation costs.
A cover for death due to accident for Rs 25,000 and compensation due to loss of earning at the rate of Rs 50 per day to a maximum of 15 days has also been provided.
Giving a little comfort zone and cushioning the needs of below poverty line (BPL) families, the government has made the scheme affordable to such families by deciding to contribute Rs 100 per year towards their annual premium.
Singh added “In the first phase at least, an additional 50 lakh BPL families will be covered during 2003-04.”