Social security systems in India are getting increasingly out-of-date
with growing needs of the retiring population, and the government
has acknowledged the need for reform in the pension scheme.The
Interim Pension Fund Regulatory and Development Authority (PFRDA)has
invited Expressions of Interest for sponsoring a Pension Fund
under the New Pension Schem.
This extraordinary move was taken
last week to invite private pension fund managers to formulate
a new pension scheme for employees.
The proposal to open the pension fund to the private sector has
however, not been welcomed by the Left parties, who are concerned
that the private sector would divert the huge corpus of pension
funds (approximately Rs.1,700 crore) to the equity market
The invitations to private players have gone ahead, nevertheless.
Limited pension reforms have been attempted to accommodate foreign
funds in entities which would be established by nationalized
banks, mutual funds and financial institutions
Three asset management companies would be permitted to manage
the pension funds of state and central government employees who
took up employment after 2004
The passage of the proposed Pension Bill would be a turning point
for fund management business in India.
Inspired by the very successful
401(K) pension scheme in the USA , which allows employees to fix
a portion of their salary towards investment in mutual funds,
small investors in India could greatly benefit if such legislation
is voted for.
It would be interesting to know that India accounts for 16.3%
of the world’s population, but our 70 million elders constitute only 12.5% of the world’s
senior population. Of these only 10% receive pension, while the
remaining are forced to work or depend on their children.
With continuous improvement in health services, the young and
middle aged population is likely to live longer. Hence, providing
for a secure retirement through investment in assets is imperative.
