PF contributions slipping, cloud over ‘pay-as-you-go’ model

• Contributions to the Employees’ Provident Fund Organisation (EPFO), the country’s largest and only social security fund for formal sector workers, has slipped into negative territory for the first time in years.
• With a Rs 5-lakh crore corpus, the fund is still the country’s second largest non-bank financial institution after the Life insurance Corporation of India.  
• Under current guidelines, workers earning upto Rs 6,500 per month in organisations with over 20 employees, are mandatorily part of the EPF scheme. Those earning over this threshold can join the EPF voluntarily. 
•  The slip is largely due to the fact that many workers have been pushed out of the mandatory EPFO net as a number of states have raised minimum wages. Besides, with an increasing number of workers coming into the job force as contractual employees, they are out of the PF net. 
• The government currently provides a susbidy of 1.16 per cent of salaries (for a maximum of Rs 6,500 per month) to the EPF, which is used for payouts to the provident fund and the related Employees’ Pension Scheme. Increasing the wage cap, would entail a higher subsidy payout for the Centre as well.  

'Pay As You Go Pension Plan'

• A retirement scheme where the plan beneficiaries decide how much they want to contribute either by having the specified amount regularly deducted from their paycheck or by contributing the desired amount in a lump sum. 
• The employee can choose among the various investment options and decide on whether they want a higher return by investing in a more risky fund or a safer fund which provides steady returns. 
• When retirement age comes along, the beneficiary can choose to either receive the benefits in a lump sum or as a lifetime annuity where the benefits are spread in monthly payments throughout the beneficiary's lifetime. This is different from a fully funded pension where the company fully funds, manages and distributes the benefits at retirement.