Salaried class pours, informal workers pare pension money
Contributions towards pension rose as new subscriber growth fell in April-july
Well-heeled Indians, mainly government employees, contributed considerably more towards old-age security in the months battered by the pandemic, but informal sector workers put in contributions smaller than in the previous year, the data shared by the Pension Fund Regulatory Authority (PFRDA) shows.
The average contribution by a government employee rose 12-13 per cent, while that from a subscriber working in the private sector grew 25 per cent in April-july this year.
But for subscribers to the Atal Pension Yojana (APY), the government’s pension scheme for informal sector workers, the average contribution declined by 33 per cent, because other retail subscribers kept their average contributions unchanged.
Overall, across all categories of subscribers, there was a 23 per cent jump in the sum of contributions in the first four months of the financial year, against a fall of 43 per cent in incremental subscriber addition.
This inequality in contribution among categories indicates that some of the lowest-earning people in the country, and the informal sector workforce which they are part of, are taking a harder hit than the salaried class — or probably the organised sector in general — in the crisis. This also suggests the contraction in gross domestic product (GDP) is likely to be more severe than the current estimate of 24 per cent, as the quarterly estimate captures only the formal sector, which did better.
The key reason for this could be the inability of informal sector workers to pay their contribution due to job and income losses in the lockdown.
The PFRDA has, to be fair to the contributors, waived the penalty for late payment to the APY till September, giving relief to the 22 million subscribers.
Strong growth in contribution, however, is surprising if we consider that job losses have been most severe among the salaried class, as the Centre for Monitoring of Indian Economy noted last month.
It said that 19 million salaried jobs were lost in April-july, and that is higher than in any other category, including the informal sector.
But what the PFRDA shows is that the smallticket contributors have invested less, while the bigticket savers have poured in more postcovid. Though Covid-19 has been the major disruptor, the rapidly growing interest in NPS due to its performance and returns is the reason for the jump, Supratim Bandyopadhyay, chairman of PFRDA, told Business Standard.
Thinking that NPS would be a better option compared to the self-managed superannuation funds, many big corporates took a decision to enrol employees under NPS in FY20, which is getting reflected in the increased contributions in FY21, he said.
He also added that the fund manager charges of 1 basis point is the lowest among other investment avenues.
In the formal sector, government employees occupy a bigger share than private sector employees and individuals. But the growing popularity of the NPS is evident from the fact that the incremental addition in corporate and individual categories was higher than government employees in April-july.
About 2.1 million central and 4.8 million state government employees account for more than 80 per cent of assets under management (AUMS). Informal sector workers are the largest group by number (22 million or 62 per cent), but command only 2.5 per cent of AUMS.
Business Standard calculations show an average APY subscriber contributed a bit more than ~600 in April-july 2019, and that came down to slightly above ~400 in April-july 2020. For individuals, the average contribution remained stagnant at ~11,500 over the year.