Editorial: Hope on pension reforms

Between 15 million and 20 million of India's 400-million strong work force have a retirement savings plan. The average corpus at the time of retirement is a paltry Rs 52,000 per individual, and only a small proportion of those covered have contributed long enough to also be entitled to the maximum life-long pension of Rs 3,250 per month. Yet, according to the annual survey by the Invest India Foundation, around 80 million workers are keen on contributing to a retirement fund, acutely aware that the age-old child-supports-parents model is breaking down. So what keeps them from contributing? Ironically, it is the very organisation that has monopoly rights over the country's pension business, the Employees Provident Fund Organisation (EPFO). Ever since the era of high interest rates got over in the 1990s and private mutual funds started delivering good results, the EPFO has consistently been shown up as a poor performer in terms of returns offered; its service record is so poor that it is still not able to deliver a unique customer ID that subscribers can use all their life "" as a result, many users have 2-3 accounts, which, apart from being difficult to manage, also ensures that workers lose out on pension coverage since you have to contribute for at least 10 years to be eligible for the monthly pension benefits. There are other problems such as the rising gap, already over Rs 25,000 crore, in the pension scheme but this is a problem for the government, which has to make it good, and not for the pensioners.

It was to fix this that, in 2005, the government sent the Pension Fund Regulatory and Development Authority (PFRDA) Bill to Parliament, to allow new pension fund managers, both public sector as well as private, to compete with the EPFO, with the PFRDA acting as an impartial regulator. The Bill languished because the Left parties argued that private fund managers were not to be trusted. This changed dramatically when, in April, the EPFO itself invited bids from various fund managers to manage the fresh deposits of around Rs 9,000 crore it gets each year "" the current corpus of Rs 150,000 crore is managed solely by State Bank of India. Suddenly the PFRDA Bill got a new lease of life: if the EPFO, dominated by Left and other unions, could trust private fund managers, why couldn't the same apply to the rest of the country? While some prominent members of the EPFO's Central Board of Trustees (CBT) are against the idea, the EPFO management has shortlisted seven private asset management companies and plans to open their financial bids next week, after which the CBT will take a call on whether to go ahead. India's plans to allow new players in the pension market have thus made a significant advance. It would be a pity if the labour unions were allowed to snuff out this reform.