PRM/U5 Topic 12 Social Security Schemes- ESIS PF, Pension Insurance, Gratuity and Maternity benefits

The Ministry of Labour & Employment, through its Labour Welfare Organizations across the country, implements welfare schemes relating to housing, education and health for low wages workers, mica mine workers, limestone & dolomite mine workers, iron ore manganese, chrome ore mine workers and cine workers. These schemes were earlier administered through 5 Welfare Cess and Welfare Funds under various Cess Acts of Parliament. Now, these cesses have been abolished/subsumed in GST and the welfare schemes have been retained with funding from the Consolidated Fund of India. Salient features of these welfare schemes: are as follows:

(i) Revised Integrated Housing Scheme-2016: Subsidy of Rs.1,50,000 for construction of a new house is provided to the workers in three installments.

(ii) Education Scheme: Financial Assistance varying from Rs.250 to Rs.15,000 per year is provided to the wards of the workers studying in classes I to XII or pursuing non-professional and professional degree/graduate/post graduate courses.

(iii) Health Scheme: Health care facilities are provided to the workers and their dependents through 12 hospitals and 286 dispensaries under Labour Welfare Organizations across the country. In addition, reimbursement of expenditure for specialized treatment taken in Government recognized hospitals is also provided. 

The above three schemes have been extended upto the financial year 2019-20. In addition to the above welfare schemes, the Central Government has recently converged the social security schemes of Aam Aadmi Bima Yojana (AABY) with Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) to provide life and disability coverage to the unorganised workers (in the age group 18-50 years)  depending upon their eligibility. PMJJBY gives coverage of Rs.2 lakhs on death at premium of Rs.330/- per annum.  PMSBY gives coverage of upto Rs.2 lakhs on accidental death and disability at premium of Rs.12 per annum.  Under the scheme, the Central Government contributes 50% of the premium for eligible unorganized workers and has requested the States to contribute the remaining 50% premium.

Employment State Insurance Scheme ( ESIS)

Employees’ State Insurance Scheme of India, is a multidimensional social security system tailored to provide socio-economic protection to worker population and their dependants covered under the scheme. Besides full medical care for self and dependants, that is admissible from day one of insurable employment, the insured persons are also entitled to a variety of cash benefits in times of physical distress due to sickness, temporary or permanent disablement etc. resulting in loss of earning capacity, the confinement in respect of insured women, dependants of insured persons who die in industrial accidents or because of employment injury or occupational hazard are entitled to a monthly pension called the dependants benefit.

Employees’ Provident Fund (EPF)

The Employees’ Provident Fund (EPF) is a savings scheme introduced under Employees’ Provident Fund and Miscellaneous Act, 1952. It is administered and managed by the Central Board of Trustees that consists of representatives from three parties, namely, the government, the employers and the employees.  The Employees’ Provident Fund Organization (EPFO) assists this board in its activities. EPFO works under the direct jurisdiction of the government and is managed through the Ministry of Labour and Employment.

The EPF scheme basically aims at promoting savings to be used post-retirement by various employees all over the country. Employees’ Provident Fund or EPF is a collection of funds contributed by the employer and his employee regularly on a monthly basis. The employer and employee contribute 12% each of the employee’s salary (basic + dearness allowance) to the EPF. These contributions earn a fixed level of interest set by the EPFO. The amount of interest to be received on the deposit along with the total accumulated amount is totally tax-free, i.e. the employee may withdraw the entire fund without worrying about paying any kind of tax on it.

The accrued amount may also be withdrawn by the nominee or the legal heir of the employee post his death or can be withdrawn by the employee himself post-resignation.

The scheme caters to the needs of more than 5 crore members and is governed by three Acts.

  • Employees’ Provident Fund Scheme, 1952
  • Employees’ Pension Scheme, 1995
  • Employees’ Deposit Linked Insurance Scheme, 1976

Important Points Related to EPF Contributions

  • The contribution made by the employee goes totally towards the provident fund of the employee.
  • The contribution made by the employer is divided into different parts.
  • Total contribution made by the employer is distributed as 8.33% towards Employees’ Pension Scheme and 3.67% towards Employees’ Provident Fund.
  • Apart from the above-made contributions, an additional 0.5% towards EDLI has to be paid by the employer.
  • Certain administration costs towards EDLI and EPF standing at the rate of 1.1% and 0.01% respectively also have to be incurred by the employer.
  • This means that the employer has to contribute a total of 13.61% of the salary towards this scheme.

Pension plans scheme

Pension plans provide financial security and stability during old age when people don’t have a regular source of income. Retirement plan ensures that people live with pride and without compromising on their standard of living during advancing years. Pension scheme gives an opportunity to invest and accumulate savings and get lump sum amount as regular income through annuity plan on retirement.

According to United Nations Population Division World’s life expectancy is expected to reach 75 years by 2050 from present level of 65 years. The better health and sanitation conditions in India have increased the life span. As a result number of post-retirement years increases. Thus, rising cost of living, inflation and life expectancy make retirement planning essential part of today’s life. To provide social security to more citizens the Government of India has started the National Pension System.

National Pension System

Government of India established Pension Fund Regulatory and Development Authority (PFRDA) – External website that opens in a new window on 10th October, 2003 to develop and regulate pension sector in the country. The National Pension System (NPS) was launched on 1st January, 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens.

Initially, NPS was introduced for the new government recruits (except armed forces). With effect from 1st May, 2009, NPS has been provided for all citizens of the country including the unorganized sector workers on voluntary basis.

Additionally, to encourage people from the unorganized sector to voluntarily save for their retirement the Central Government launched a co-contributory pension scheme, ‘Swavalamban Scheme – External website that opens in a new window’ in the Union Budget of 2010-11. Under Swavalamban Scheme – External website that opens in a new window, the government will contribute a sum of Rs.1,000 to each eligible NPS subscriber who contributes a minimum of Rs.1,000 and maximum Rs.12,000 per annum.

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