The Pension bill is set to provide a fillip to the already evolving pension market in the country which has shifted from a defined benefit structure to defined contribution one since the introduction of the National Pension System in 2004. The retirement saving option was also made available to the unorganised sector that earlier only had the option to invest in the public provident fund (PPF) and pension schemes offered by insurance companies or mutual funds.
The pension scheme will be different from the current defined benefit scheme that applies to all government employees who joined service before 2004. They get a pension which is paid out of the consolidated fund of India and the government incurs an expenditure of over Rs 30,000 crore for their pension liabilities. But there is no asset to back up this pension.
However, the NPS scheme which was initially available to those government employees, who joined service post 2004, has since been opened for all citizens of the country from May 2009. In the last 9 years it has been able to rope in over 50 lakh subscribers and has built a corpus of over Rs 33,000 crore as of May 2013. Unlike the pre-2004 situation, here employees pay from their monthly salary to finance their pension.
This pattern is set to grow exponentially. A study conducted by a global asset management company, Mahler Fund Management says by 2015 the pension assets under NPS scheme may grow to $175 billion (over Rs 10 lakh crore).
According to an ADB survey report while the total size of Indian labour force is 4.25 crore, half of which can immediately join NPS and yet there will still be a huge number to be brought into the net going forward.
Also there are a few states who are yet to join the scheme. While 26 states have already joined NPS, two states — West Bengal and Tripura are yet to join the scheme.
The huge untapped market is something that global fund managers have been eyeing and the pension bill allows foreign investment of up to 26 per cent in the pension sector.
While foreign fund managers may be eyeing the market, the Indian pension fund industry has undergone significant changes over the last few years and offers a whole lot of options to subscribers.
Under NPS, a member can have a complete control of how his contributions and savings in his personal retirement account