Focus on providing pension to the poor

Gautam Bhardwaj, Director, Invest India Micro Pension Services

Retirement benefits in a defined contribution system with individual accounts such as National Pension System (NPS) will depend principally on contributions and the accumulated investment earnings on them. Efficient management of NPS assets can generate larger benefits for subscribers.

This, in turn, could be a powerful tool to motivate potential subscribers to open NPS accounts and for existing customers to continue their contributions. High real returns on NPS savings are critical for India as this could play a key role in converting the tiny savings values of millions of low-income workers into an above-poverty annuity.

In this context, FDI in pension funds is really a non-issue. Instead, a primary concern for both policymakers and the PFRDA should be to engage the best pension fund managers available, regardless of their shareholding. This has already served us well in the context of mutual funds.

Between 26% and 100% of several AMCs is owned by overseas institutions. Sebi provides strong regulatory oversight and clear investment regulations to ensure that savings of millions of Indians in mutual funds are protected. So, FDI was not a consideration when Sebi-regulated AMCs were hired by the EPFO to manage the PF assets of over 50 lakh formal sector workers.

Customer protection can be achieved through institutional architecture design, like in mutual funds and the NPS. Both are based on a time-tested 'trust' model where the underlying assets do not sit on the books of the fund manager and individual subscribers remain beneficial owners of the trust assets.

Instead of looking at FDI implementation issues, Parliament could debate strategies to overcome the more fundamental and urgent challenge of bridging India's huge pension coverage gap. And of creating parity and portability across pension verticals through a national pension policy that assures every Indian the right to a dignified old age.

Setting FDI limits could distract future policymakers from more pressing concerns. We could do well to buck the trend with FDI in pensions and leave future decisions in this regard to the executive. And, perhaps, set an important precedent.

 

Source: http://economictimes.indiatimes.com/opinion/et-debate/focus-on-providing-pension-to-the-poor/articleshow/10837036.cms

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