Provident Funds

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PROVIDENT FUNDS

PPF should provide for an optional contribution for insurance against death and permanent disability.

A Public Pension Scheme (PPS) should be initiated under the Public Provident Fund. 10% of contributions to the PPF should be mandatorily earmarked for this new Public Pension Scheme with a minimum contribution of Rs.500 a year.

The first Rs.500 contribution to PPF every year will go towards the mandatory Public Pension Scheme. Those desirous of contributing higher percentages can contribute more. As in the case of the Employee Pension Scheme (EPS), the vesting period should be 10 years. As recommended in Chapter 3, breaks in contribution should be permissible and lump-sum contributions in case of short-fall in the minimum contribution period, should be permitted.

Those who are members of any other pension scheme, on submission of documentary evidence, may be exempted. The quantum of pension would be determined by the accumulation to the credit of the subscriber at the time of retirement, death or permanent disability.

Annuities

Presently, the function of accumulating wealth and selling annuities are both bundled into existing provident fund institutions.

Annuity provision will be more efficiently achieved by a market with competing annuity providers registered with the Insurance Regulatory Authority. The Government should work towards obtaining a thriving, competitive annuity market where private, public and foreign firms compete in selling the cheapest annuities to India 's citizens.

At age 60, the worker would accumulate a stock of wealth. On the principle of avoiding double taxation, the part which is put into an annuity should be tax exempt. The remainder, subject to the exemption limit, should be taxed at a 10% rate. The annual income obtained from the annuity should be a part of taxable income.

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