Balwant Jain: Help your maid secure a comfortable retirement

Have you ever thought how your maid or your driver will cope in their old age without some regular income? This piece is dedicated to those who selflessly serve us round the year.

National Pension System (NPS) has introduced ‘Swavlamban Yojana’ for those who don’t work in the organised sector and live hand-to-mouth throughout their lives. As a privileged individual, it is our duty to enroll these people for ‘Swavlamban Yojana’, so that they do not spend their old age in misery.

This is a novel scheme, implemented by the Government of India, for the not-so-fortunate people, who are unable to even contribute the minimum amount of Rs12,000 per year towards the regular NPS.

In order to help these people with meager means, the ‘Swavlamban Yojana’ has been launched under the umbrella of NPS. The novel aspect of this scheme is that here the Government of India contributes `1,000 every year for 5 years to the account of subscriber of this scheme over and above his own contribution.

Let us discuss the scheme in detail.

Who is covered?
The purpose of the scheme is to create retirement funds for those who work in unorganised sector without any structured benefits and are at the lower rung of the income. The eligibility criteria prescribed here is liberal so that a larger number of people are benefited through this scheme. This is available only to the persons who are otherwise not covered by any retirement benefits schemes.

Employees of central or state government and public sector undertakings, who are either owned by the central or state government or any other autonomous body such as Municipal Corporation, cannot open this account since they are already entitled for retirement benefits as per the schemes of these employers. In addition to the government and semi-government employees, any employee who is member of any provident fund scheme also cannot join the Swavlamban Yojana.

Please note that provident fund scheme here does not cover accounts opened under PPF (Public Provident Fund) scheme and therefore people who have Public Provident Fund accounts can avail the benefits under this scheme.

The sole eligibility criteria for joining this scheme are non membership of provident fund scheme and not the income criteria. Since no income criteria are prescribed for joining this scheme, this can be misused by the persons who are otherwise well-off.

Contribution requirement:
The minimum annual contribution under this scheme is Rs1,000, which should be made to Tier I account. The person can contribute an extra amount of upto Rs11,000 either to Tier I account or Tier II account. Please note that it is not necessary that the person should have both the Tier I and Tier II account for claiming this benefit.

This option of allowing an extra contribution upto Rs11,000 towards Tier II account provides the account holder flexibility and freedom to contribute more than the minimum amount and at the same time allow him the ability to withdraw the amount for meeting contingencies.

Contributions by the government:
The central government will contribute Rs1,000 every year to all the accounts opened under this scheme for five years. This scheme was announced during the year 2010-2011 and has since been extended for five years. So any account opened during these five years will make the account holder eligible for yearly government contribution of Rs1,000 for five years.

If a person becomes subject to disqualification criteria later on, the contribution from government will cease from such date. The committee appointed to review the existing system has recommended an extension for this scheme so as to cover more persons in due course.

How to join the scheme?
Any person who wants to be covered under Swavlamban can either open his NPS account himself or he can take the help of organizations which are appointed under the scheme called “NPS Lite’  for helping such persons to open the account. A list of such organizations known as aggregators, and approved by IFRDA is available on the link: http://www.pfrda.org.in/writereaddata/linkimages/Aggregato20List601756354.pdf

The person who wishes to open the account under this Swavlamban has to declare while joining the NPS that he falls under the purview of working in unorganised sector.

Withdrawals from NPS account
The person covered under here, will have to purchase an annuity of minimum of 40% of the accumulated balance in NPS on completing 60 years of age. In case the person wishes to withdraw the money before completing 60 years of age, he has to compulsorily purchase an annuity equal to 80% of the amount accumulated in his NPS account.

However, if the 40% or 80% of the balance at the relevant time is not sufficient to fetch an annuity of Rs1,000 per month, then the appropriate higher balance will have to be used for the purchase of annuity. In case the entire balance accumulated at the relevant time is not sufficient to ensure an annuity of `1,000 per month, the entire balance will have to be used for the purpose of buying the annuity.

So now you know that not only you can get the benefit of NPS account, but also you can help others associated with you as your housemaid or driver. You can help them open account under Swavlamban Scheme and ensure the government contribution Rs1,000 for at least five years.

This will make them “Swavlambi” in the long run and they will appreciate you all the more for your concern.

The writer is CFO, Apnapaisa.com, a price and features comparison engine for loans, insurance and investments. He can be reached at balwant.jain@apnapaisa.com.