The government has shelved the proposal to allow provident fund subscribers to switch from Employees' Pension Scheme (EPS) to National Pension System (NPS) as it faced massive protests from trade unions and the retirement funds body EPFO.
The EPS is managed by the Employees' Provident Fund Organisation (EPFO) providing fixed pension beginning from 58 or 60 years of age until death while NPS is a defined contribution retirement scheme administered by Pension Fund Regulatory and Development Authority. The returns offered by EPS are paid on a monthly basis and is fixed but the NPS returns are market-linked. EPS is tax-free while, 60 percent of the NPS corpus upon retirement is tax-free and the remaining 40 percent has to be invested in an annuity scheme.
The labour ministry took this decision at a meeting with EPFO. As per the Employees’ Pension Scheme, 1995, an employer contributes 8.33% of an employee’s salary to pension, subject to a maximum of Rs 1250 per month.
A senior government official told ET that the labour ministry has decided to shelve the plan for now. Before this decision becomes official, the minutes of the meeting have to be approved by the secretary. Following the secretary's approval, the minutes of the meeting will become official.
In the Union Budget 2015-16, the government had given an option to EPFO subscribers to opt for NPS which saw considerable objections from trade unions at that time. Three years later, the labour ministry presented a draft amendment bill to the Employees’ Provident Funds and Miscellaneous Provisions Act on 23rd August, proposing to allow the EPFO subscribers to opt for NPS, instead of the Employees’ Pension Scheme (EPS).
The government had prepared a draft bill proposing major amendments in the Employees' Provident Fund (EPF) and Employees' Pension Scheme (EPS). As per the draft bill, EPF members would have had the option to switch their money from EPS to National Pension System (NPS).
According to the report, PFRDA Act does not allow NPS subscribers to go back to EPFO and there is no portability between the systems.
One important reason that led to shelving of this proposal is that it proposed moving only the pension part to NPS, while it sought to retain the provident fund contribution with EPFO. The official cited above said “It has to be the shift of entire kitty/contribution like in NPS for government employees and cannot be partially between NPS and EPFO”.
Ten central trade unions boycotted a triparttite meeting called by the labour ministry recently to discuss the proposal. RSS-affiliated Bhartiya Mazdoor Sangh flatly rejected the proposal saying that NPS was not at par with EPS and there is no certainty on the rate of return. It said that NPS is risky and market-linked and returns on EPS are much more.
As per a report in Business Standard, BMS raised objections in the recent consultation meeting saying "EPS has more benefits, including that to family members, insurance, widow pension etc, whereas NPS has a lock-in period of 15 years for withdrawal.
Earlier NASSCOM had also raised qualms about how the bill would pose a huge administrative burden for the employer every time the employee exercises the option since the employer will have to transfer the accumulated amounts back and forth.