Is there ‘public interest’ in deferring pension bill?
(Rajan Ghotgalkar is Managing Director of Principal Pnb Asset Management Company. The views expressed in this column are his own and do not represent those of either Principal Pnb or Reuters)
The pension bill, first introduced in 2005, got booted out yet again; only this time in ‘public interest’.
Across the world, employers have been finding it increasingly difficult to live up to tacit guarantees underlying a ‘defined benefits’ pension system — a natural fallout of the elderly outnumbering the working population combined with increasing unpredictability in our economic environment over the past two decades.
The feasible alternative is a ‘defined contribution’ system. Under this an employer makes their contribution and ends his responsibility.
The rate at which people change jobs and businesses get re-engineered, it’s possibly best for everyone to take charge of one’s future. The system usually brings along benefits of transportability and the money is not subjected to the employer’s balance sheet risk.
The investors will have a choice in ‘asset allocation’ and should be able to choose between government securities to an actively managed debt portfolio. Similarly, equity risk can be limited.
Of course, there is the risk of the un-empowered being expected to make choices they don’t understand. This will have to be addressed through education and guidelines for advisory selling.
Considering that, the New Pension Scheme (NPS) is already applicable to those in government service since 2004; the benefits of this Bill should accrue to the unorganised sector, the self employed and professionals who don’t have access to a structured pension vehicle.
This legislation will replace the ‘pay as we go’ arrangements by regulated and transparent ‘funded’ retirement schemes.
Therefore, it may well be worth giving in to the demand for FDI 26 pct limit in return for a free passage of this bill – it may not be all we wish for but at least we would have begun the journey.
With the EPF continuing, the new pension scheme driven by tax benefits should be voluntary.
Being at the stage it is in the demographic and economic cycle, India still has the time, not too much though, to set the foundation for a retirement system.
With the ‘social promise’ giving way, Indians will have to fast get self-reliant in their retirement and hopefully, the government will do its bit in assisting us.
Of course, the next big challenge will be to formulate realistic compensation to manage and sell these pension products.
In the meantime, can someone please articulate for the ‘public’ what ‘public interest’ is being adversely impacted by the pension bill?