Reform redux

Jun 09 2014, 00:32 IST
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SummaryTarget 200-mn in NPS by 2019, club EPF into NPS & encourage reverse mortgage

It’s been a decade since the pension reforms were first dribbled out in early 2004 under the NDA regime. In 2014, as the ball shifts back to the BJP regime, it is an opportunity for the new finance minister to put the reforms back on track.

India has over 100 million elderly and this population will triple to 300 million by the time those at age 30 today turn 60. The last decade barely made a difference to the pension outcome of over 500 million workforce in the working age.

Civil servants’ pension reform has largely succeeded with 3.3 million central and state government employees now in a fully defined contribution (DC) system with pension assets (about R426 billion) invested in a mix of debt and equity. The old defined benefit (DB) and unfunded system where each retiree got a pension of about 50% of last pay has been successfully restricted to employees who joined before January 1, 2004.

But a few state governments are paying truant and the new regime at the Centre needs to focus on them. Maharashtra and Tamil Nadu joined the NPS long ago but are keeping the scheme funds in their public accounts instead of remitting the same to NPS. West Bengal and Tripura have not yet signed up. This is also an area where PFRDA, the pension regulator, has little influence.

Resting on a 1952 legislation, it is a challenging task to reform the Employee Provident Fund (EPF) but with a customer base of 50 million, it is an important cause. Measures like auctioning the fund management and moving forward on making the systems user-friendly could be counted as hits. However, well into 2014, there is still lack of assurance on maintenance of accurate data, with customer accounts even reflecting negative balances! The more important reform here is to look at integrating EPF into NPS.

The logic is evident. Private sector employees should be able to invest their mandatory provident fund in the NPS and benefits from scheme level choices and a largely glitch-free system architecture. With this, India can move closer to an integrated pension architecture with one pension account for a person irrespective whether one is in government or private service or is self-employed or switches career inter se. Here, the government should first put the NPS in order and ensure there is portability of account within NPS for the employees moving from government to private sector

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