Let’s expand social security: Provident fund reforms are vital for India
₹25,000 per month (or less) is close to zero, implying they barely get past essential spending. Employees should get two choices: Whether to make any employee contribution at all (set at 12% right now), and if so, whether to opt out of the portion that goes to the defined-benefit Employee Pension Scheme (EPS) and contribute the sum fully to the core Employee Provident Fund (EFP) account. Effectiveness: Employment has shifted from being a lifetime contract to a taxicab relationship; most employees of this generation will have multiple employers, including themselves.
The EPFO has a design birth defect that links records to employers rather than employees and their hundreds and thousands of orphaned accounts, with the last estimate putting unclaimed balances at over ₹25,000 crore. Making EPFO contributions to an Aadhaar number will create traceability, portability and access. This change will also enable EPFO products to be offered to self-employed and gig workers.
Sustainability: The EPS diverts 8.33% of a subscriber’s salary to a defined-benefit plan. But the EPS has a birth defect; pension contributions or pension benefits can be fixed, but the EPS fixes both. This scheme has become even more unviable with the November 2022 court judgement that bankrupts the scheme, with the court upholding the entitlement of opting for a higher pension by contributing to the EPS on an uncapped salary.
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