Another Opportunity Lost

Managing Director

India Life Hewitt

Being a prisoner of government paper, lower rates affect pension fund earnings but that we have made peace with.

The tragedy of the credit policy was the absence of anything to resolve the disconnect between the ministry of labour, the Reserve Bank of India (RBI) and the ministry of finance that is killing private pension funds.

Private pension funds face the impossible situation matching the unscientific rates of the ministry of labour from market priced government paper.

Any further secular lowering of rates would have forced many private pension funds to devolve on sponsor company profit and loss accounts for incremental returns.

Hence the most positive signal of the credit policy for pension funds is a stable or flattening interest regime. OTC interest rate derivatives are a potent tool for the asset liability crisis that employers with extreme population profiles face; expect pension players to become large users.

The biggest disappointment was the lack of progress on structural issues like market-linking administered rates and the special deposit securitisation (this has about 70 per cent of pension assets in India).

While mother nature pension reform will take time and political will, these potent tools are fully in RBI