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Home / IAS Preparation / National Pension Scheme| UPSC Notes

National Pension Scheme for Traders & Self-Employed Persons | UPSC Notes

Last Updated on Oct 14, 2024
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The National Pension Scheme for Traders and Self-Employed Persons is a scheme initiated by the Indian Government in the form of pension benefits to small-time traders and self-employed people, most of whom have no formal retirement savings mechanism. The scheme comes under the larger umbrella of the Social Security Code that aims at providing financial security and a better standard of living in old age for unorganised sectorial members. One of the important steps towards growth in an inclusive manner lies herein, wherein the informal sector workers can also enjoy a pension system.

National Pension Scheme for Traders and Self-Employed Persons is a subject under General Studies Paper II of the UPSC Civil Services Examination. It falls under the subject category of Governance, Constitution, Polity, Social Justice, and International relations. The topic is particularly important to understand the initiatives by the government regarding social security and welfare, especially for the unorganized sector, which forms a huge chunk of India's workforce.

GS Paper

General Studies Paper II

Topics for UPSC Prelims

National Pension Scheme for Traders (NPS-Traders), Atal Pension Yojana (APY), Pension Fund Regulatory and Development Authority (PFRDA), Financial Inclusion, Welfare Schemes for Unorganized Sector

Topics for UPSC Mains

Challenges in Implementing Pension Schemes, Role of Pension Funds in Social Security, Government Policies for Social Security

About the National Pension Scheme for Traders and Self-Employed Persons

The National Pension Scheme for Traders and Self-Employed Persons is a social security plan introduced by the Government of India to provide old-age protection and financial security to India's large segment of small traders and self-employed individuals who have traditionally been excluded from formal pension schemes. The scheme targets subscribers between 18 years and 40 years with annual turnover not exceeding INR 1.5 crore. A minimum assured pension will be provided to the subscriber on attaining the age of 60 years. The government will double the beneficiary's contribution at the end. This project aims to instill a saving culture in this vulnerable section of society, ensuring them a proper cover for the later years of life.

Background

A large chunk of workers in India are classified as working in the unorganized sector—small-scale trading, shopkeepers, and other self-employed sectors. They are not covered under formal pension schemes. Being aware of this lacuna, the Government of India introduced the National Pension Scheme for Traders and Self-Employed Persons in September 2019. Released by the Ministry of Labour and Employment, this scheme covers around 3 crore small traders and self-employed persons who are a significant part of the market economy but are highly vulnerable in their advanced old age due to the absence of a social security net.

Read the article on the National Pension Scheme (NPS)!

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Objectives of the National Pension Scheme for Traders and Self-Employed Persons

The objectives of the scheme include offering old-age protection and building economic security for small-scale operators along with the self-employed, besides creating a saving culture that will help prevent economic insecurity during their advanced age. The scheme aims to include more members of the informal sector into the social protection system and ensure a sure source of income during old age.

Key Features of the National Pension Scheme for Traders and Self-Employed Persons

The scheme has several features that enable ease and comprehensive coverage:

  • Simple Enrolment: All arrangements have been made through Common Service Centres or online at the official portal after self-certification only.
  • Contribution Matching: The government matches the contributions made by the subscriber and adjusts the same within specified limits so that the benefit is doubled while sharing the savings burden.
  • Auto Debit Facility: Contributions are auto-debited from the subscriber's bank account for ease of operation and on a regular contribution basis.
  • Age Limit: Persons between ages 18 and 40 years can subscribe for it with the objective of contributing over a long working period.
  • Guaranteed Pension: After attaining 60 years of age, the subscriber receives at least a guaranteed pension of INR 3,000 every month with a steady income on retirement.
  • Family Pension: After the death of the subscriber, the spouse is eligible to receive half of the pension as a family pension; hence it continues even after the subscriber's death.

Read the article on the OROP Scheme!

Eligibility for the National Pension Scheme for Traders and Self-Employed Persons

The eligibility criteria are articulated to capture the specific beneficiary and exclude those who are already covered through other schemes or earn above specific economic thresholds:

  • Age Criteria: The age to be enlisted is between 18 and 40 years.
  • Income Criteria: The business should have an annual turnover of up to INR 1.5 crore.
  • Declaration: A declaration by the individual would be needed for accepting registration to prove that the individual is not covered under the EPFO/ESIC/NPS (Government)/PM-SYM or an income tax assessee.
  • Exclusions: Persons covered under any other pension scheme of the government and income-tax assessees are not eligible.

Read the article on the Social Security Agreements!

Benefits of the National Pension Scheme for Traders and Self-Employed Persons

The scheme offers many benefits to its subscribers, from which they could look forward to attaining financial security during their post-retirement years:

  • Old Age Financial Security: The scheme provides for a minimum pension that ensures income stability.
  • Government Contribution: The amount is matched by the government, thus one's own contribution is multiplied exactly twice.
  • Ease of Enrollment and Maintenance: A simple and hassle-free enrollment process through CSCs and online portals.
  • Pension to the Family: A source of financial support to the family in case the subscriber dies.
  • Social Inclusion: Most of the self-employed and small traders fall into a formalized pensionary system, hence promoting inclusive growth.

Read the article on the Code on Social Security, 2020!

Challenges Associated with the National Pension Scheme for Traders and Self-Employed Persons

Despite these many merits, there are several drawbacks that may actually work against the overall scheme:

  • Awareness and Outreach: In most cases, eligible persons are not aware of this scheme, thus curbing its reach and effectiveness.
  • Financial Literacy: Proper enrollment and utilization are hindered by the lack of financial literacy in the target group.
  • Administrative Hurdles: Ensuring regular contributions amidst the informal nature of their income can be challenging.
  • Distrust: Fear regarding the genuineness of government schemes and their long-run sustainability hampers utilization.
  • Ground Implementation: It differs in different regions, demanding varied efforts to apply the scheme, which causes unequal benefits.

Read the article on Social Welfare!

Conclusion

The National Pension Scheme for Traders and Self-Employed Persons stands as a pivotal step towards securing the financial future of a significant portion of India's informal workforce. With its high benefit promises and valiant effort at closing the social security gap for small traders and the self-employed, the scheme's success depends heavily on effective implementation, public awareness, and sustained government action to address arising challenges. Ultimately, it marks a move towards a more inclusive and equitable social security system in India.

Key Takeaways for UPSC Aspirants

  • Social Security Extension: This scheme provides financial security in old age to self-employed individuals and small traders who typically lack formal pension coverage.
  • Government Support: It fits into the larger government policy of enhancing social security for the unorganized sectors while maintaining fiscal responsibility through a defined pension system.
  • Eligibility: The scheme is available for self-employed individuals and small traders aged between 18 and 40 years, allowing for comprehensive yet targeted coverage.
  • Government Co-Contribution: The government also contributes to the pension account, building savings and overall financial security.
  • Management: The scheme is governed by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures systematic and secure management of pension funds.
  • Financial Inclusion: The scheme introduces self-employed individuals to the formal pension system, supporting a savings culture and financial planning.
  • Implementation Challenges: Overcoming issues such as awareness creation, promoting enrollment, and effective implementation in rural and underserved areas.
  • Impact Evaluation: Continuous review of the scheme's effectiveness in providing social security protection to traders and self-employed individuals.

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National Pension Scheme for traders and self-employed FAQs

Yes. A self-employed person can invest in the general National Pension Scheme (NPS) or opt for the special scheme for traders and the self-employed to get additional benefits.

Yes. A business person can invest in the National Pension Scheme. They can choose the all-inclusive NPS or the special scheme for small traders and the self-employed.

Individuals who are income taxpayers or covered under other government-based pension schemes (EPFO, ESIC, NPS for government employees, PM-SYM), and whose annual business turnover exceeds INR 1.5 crore, are not eligible for the scheme.

An unemployed person can open a general NPS account, provided they have a bank account and meet the age criteria, although they would not be eligible for the specific traders and self-employed persons' scheme as it is designed for individuals actively engaged in business or self-employment.

Enrollment can be done through Common Service Centres (CSCs) across the country or via the online portal dedicated to the scheme, with self-certification of eligibility and personal details.

Contributions are based on the age of the subscriber at the time of joining, ranging from approximately INR 55 to INR 200 per month. The government matches this contribution, effectively doubling the pension fund.

The National Pension Scheme for Traders and Self-Employed Persons provides a guaranteed minimum pension of INR 3,000 per month at the age of 60 for small traders or self-employed individuals who meet the eligibility criteria.
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