MSMEs seeking MUDRA loan may have to register their employees with NPS

New Delhi, Jan 6 (KNN) The government is considering to make it mandatory for MSMEs with staff strength of less than 20 to bring all their workers under the National Pension System (NPS) to avail the Mudra loans, according to a report in the Financial express.

According to the report, this condition could only apply for a certain period of employment.

The proposed initiative by the government would require an amendment to the Pension Fund Regulatory and Development Authority (PFRDA) Act.

“We feel that if auto-enrolment is made mandatory in the initial stage for MSMEs taking Mudra loans and employing less than 20 people, it would help NPS grow and bring more people under pension net,” an official said.

The PFRDA is pushing for auto-enrolment under NPS to drive pension coverage growth in the country due to saturation of the government sector, for whom it is mandatory.

Presently, around 120 million workers, the bulk of whom are in the organised sector are covered under some kind of retirement benefit either under the following schemes: Employment Provident Fund (EPF), NPS, PM Shram Yogi Maandhan, Pradhan Mantri Kisan Maandhan, Coal Mines Provident Fund, Assam Tea Plantation Provident Fund, Seamen Provident Fund, and various other superannuation funds.

However, there are nearly 380 million uncovered workforce in the country, most of which work in MSMEs which have no social security cover.

If auto-enrolment is made mandatory for a certain category of MSMEs, it won’t be very taxing for them or their employees. Only Rs 500 is required to open an NPS account and Rs 1,000 per year to keep it running. If they want to look at the guaranteed pension scheme, the annual contribution will be even less at around Rs 500 at the lower end, financial express said quoting an official.

Under the PM Mudra Yojana, collateral-free loans from banks and financial institutions can be availed for activities in the manufacturing, trading, and services sector and also for activities allied to agriculture.

“Mandatory auto-enrolment under NPS if it happens will be great for pension coverage of more workers. In fact, the gratuity of MSME workers should be deposited in their NPS account as they often don’t get the benefit in normal circumstances,” Gautam Bhardwaj, co-founder of pinBox, a global pension-tech, said.

The Payment of Gratuity Act, 1972, is an act that makes the payment of gratuity mandatory for employers to their employees. The gratuity is 15 days’ wages for every year of employee service if they have worked for minimum five years.

Firms often misuse the provision to deny workers the benefit by employing them for less than five years. The minimum period for gratuity eligibility should be reduced to two years, Bhardwaj said.

The gratuity amount would be sufficient to cover employees’ share in NPS, he added.  (KNN Bureau)