Allow social security schemes for employees to survive post retirement
If the government intends to remove the mandatory 12% PF contribution, then it must introduce social security scheme for employees to survive after retirement
 
A media report captioned “Union budget may boost take-home salaries” published in The Hindu on Friday, sends out disturbing signals. According to the report, the Union Budget 2016-17 is likely to announce measures to put more money into the hands of employees with a monthly income up to a threshold, like Rs10,000 for instance, by doing away with their mandatory 12% contribution for provident fund (PF) savings. We will definitely have to wait for more details till 29 February 2016 on which day the Union Budget will be presented. Meanwhile, one cannot resist the temptation to caution stakeholders against the harm the proposed measure may do to a fairly good-working and acceptable social security arrangement that exists in the organised sector.
 
On the face of it, the proposal to discontinue recovery of provident fund contribution from wages of employees with low income, would appear a worker-friendly initiative, putting more money in the employees’ pockets. In effect, the move reduces the corpus intended to take care of the employee’s retired life by half. As there are no social security systems of the kind available in developed countries, workers in the organised sector are protected to some extent by their savings through PF contribution. It is cruel on the part of government to lure them by promise of more take-home pay by reducing their forced savings for a genuine purpose.
 
Such a gesture to reduce employees’ contribution should be made only where employers are able to compensate by increasing their contribution to PF to the extent employees’ contribution is reduced.
 
Ethically, smuggling such drastic measures through budget proposals, which get through without adequate informed discussion in compelling circumstances, should not be an option. This happened in the case of withdrawal of Defined Payment-based Pension Scheme, when New Pension Scheme (now National Pension System -NPS) was introduced sans legislative procedure. As the scheme was made applicable for employees who joined subsequently, no one noticed the harm inherent in the measure. NPS was deliberately excluded from the Terms of References of the VI and VII Central Pay Commissions (CPC). On receipt of a host of representations, VII CPC examined the NPS in some detail and the findings find a place in Chapter 10.3 of the Commission’s report.
 
Now the mistake in respect of NPS is likely to be repeated now in the case of employees PF Scheme. Legislative processes should not be skipped for administrative expediency or on grounds of political compulsions.
 
(MG Warrier  is former General Manager, RBI, Mumbai and author of the 2014 book "Banking, Reforms & Corruption: Development Issues in 21st Century India")

User

COMMENTS

MG Warrier

10 months ago

The pedestrian apathy of elite readers to social security issues of low income group workers is evident from the fact that after over 800 page views, there is just one casual comment on this article. What more can one expect in a country where the Social Welfare Minister asks banks to give loans to citizens with no means to survive, for constructing toilets? The group of workers that will be affected, if government goes ahead with the move will be worse off than made out in this article clearly comes out from the following excerpts copied from an online comment posted @thehindu.in by a reader Amit:
“The present rate of contributions for employees is 12% of only basic DA and not 24% as given in the caption. Further, out of 12% contributed by employer 8.33 is invested in pension fund, out of which employees receives his pension. The remaining 3.67% is added in employees' share of provident Fund. Thus, just by contributing 12% of a Employee gets 15.67% every in his account, which can be withdrawn by employee at the time of leaving the job. he can also withdraw for approved purposes like purchase of house, marriage of children, self in case of unmarried persions , medical treatment and higher education for children. Further employee's portion of PF earns interest. Currently, the rate of interest is 8.75% which is higher 8.5% earned in GPF by central Govt. Employees”.

nginx

10 months ago

Well the solution is simple. Give employees the option to opt-out of their 12% contribution. Forcing people to do anything including savings is never a good idea.

Those who are saavy enough to save for their retirement on their own will be able to better utilize the funds than EPFO is doing now. Infact the employer's 12% contribution is a total waste in its current incarnation as EPS does not get any interest.

I say give the employees option to opt-out of the entire 24% contribution and instead receive it as bonus to salary.

AgriGold chairman and MD sent to judicial custody for 14 days in a case of alleged illegal deposits
Vijayawda : A court in Andhra Pradesh on Friday sent AgriGold chairman A.Venkata Rama Rao and managing director A.V.S. Narayana Rao to judicial custody for 14 days in a case of alleged illegal deposits.
 
The Crime Investigation Department (CID), which arrested the duo on Thursday night, presented them before the second additional metropolitan court in Eluru in West Godavari district.
 
A group of depositors tried to stop the police vehicle carrying them. The police had to intervene to disperse the protestors.
 
The management of AgriGold Farm Estates India allegedly collected deposits to the tune of Rs.7,000 crore from depositors in Andhra Pradesh, Telangana, Karnataka and other states without statutory permission. Over 32 lakh people invested their life savings in the company.
 
The arrests were made a few days after the High Court of Judicature at Hyderabad for both Andhra Pradesh and Telangana pulled up the CID for "slackness" in the investigation and its failure to arrest the company management.
 
The high court also threatened to hand over the case to the Central Bureau of Investigation (CBI).
 
The arrests were made a few hours before the case was to come up for hearing in the high court.
 
The high court, which resumed hearing on Friday, adjourned it to February 19.
 
The AgriGold management submitted to the court list of its assets. The judicial committee, constituted by the court to auction the properties, is scheduled to meet on Friday evening.
 
The state government handed over the case to the CID about two years ago but the depositors moved the court over the delay in investigations.
 
Telangana AgriGold Customers and Agents' Welfare Association filed a petition seeking probe either by the CBI or Enforcement Directorate.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

User

COMMENTS

sreedevi

7 months ago

Please let me know the total outcome. Are we Investors going to get back our hard earned money or not. For how many days/ months/ years we have to wait to get back our own hard earned money?

Gopalakrishnan T V

10 months ago

Thank God some action is taken. There are are several farm lands, farm club farm resorts etc operating in the country and god alone knows whom they are reporting and how their transactions are regulated or accounted for? There is a mushroom growth of such farm land clubs in and around major cities and the city dwellers are lured / attracted to invest in such lands and made members of farm clubs. The operators purchase huge parcels of agricultural lands from innocent farmers and convert these lands into farm lands and sold to prospective and innocent customers with some incentives and they are all trapped. Transactions are all in black money except for small portion and there is a continuous extortion of money in the garb of maintenance of farm lands. They do not provide any accounts and they do not give anything in writing. Only they make periodical demands of money and they open and close accounts very fast perhaps to escape scrutiny or any trail. The loss of agricultural production, the loss of revenues to the State Governments and generation of black money and illegal activities are the result. The case in hand is perhaps only a tip of the iceberg. It should be an eye opener to the authorities to keep a watch on many such operators in and around major cities taking advantage of the of the rich middle class seen of late.

Index Schemes Vs ETFs
Which one is the better investment route?
 
Both work on the same investment concept,...
Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital+Print Access

Subscribe

Moneylife Magazine Subscriber or MSSN member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)