5th Annual IIEF Pension Sector Summit, 2003
03 - 04 December 2003, Hotel Intercontinental, New Delhi, India

Cosponsored by:

DAY ONE:
03 December 2003

Opening remarks and backdrop
Gautam Bhardwaj
Director, Invest India Economic Foundation

The significance and socio-economic rationale of recent pension reform initiatives
Dr. Ashok Lahiri
Chief Economic Advisor to the Government of India, Ministry of Finance

Policy framework for the new pension system (Q & A)
In this session, a panel of senior officers from the PFRDA, DEA and DPPW will discuss the policy framework and actions for operationalising the new pension system for new central government employees and informal sector workers, and also provide answers and clarity on the roadmap for its implementation. During this session, participants will also obtain an insight to the broad operational and regulatory framework for this new DC pension provision. The discussions in this session will provide an appropriate backdrop for the subsequent sessions which will discuss operations, operating guidelines, eligibility criteria, and selection of various categories of entities which participate in this system as well as issues of regulation, coverage, benefits, etc.


Policy framework of the new pension system
U.K. Sinha
Joint Secretary (Capital Markers & Pensions), Department of Economic Affairs, Ministry of Finance

Questions & Answers session

Discussants
Yashwant S. Bhave
Additional Secretary
Ministry of Personnel, Public Grievances & Pensions

Dr. Ajay Shah
Consultant, Department of Economic Affairs, Ministry of Finance

End of Session

Process engineering
A clear and crisp articulation of the full set of operations, processes, roles and responsibilities of service providers, as well as the inter-linkages between the regulator, service providers and the customers or users will lay the ground for policy formulation and establishing the regulatory framework and guidelines for the new pension system. In the process of drafting the operational environment of the new pension system, the PFRDA is likely to encounter several key policy questions and choices that need to be addressed before operationalising this new pension system. In addition, a detailed understanding of the operations and operating guidelines will provide the PFRDA with a basis for finalizing the regulations, policies, guidelines and rules under which the various entities will function and also the compliance and reporting processes. In this session, Mr. Bhave will describe the operational architecture and operational responsibilities of the various entities towards customers including the CRA in the new pension system. This will include the processes for allotting a unique identification number to workers and opening of individual retirement accounts; collection of worker contributions; receipt and deployment of funds, disclosure of performance, fee structure and loads (if any); selection of PFM by workers; channeling worker contributions under the 'default' mode; Switching between PFMs and products; Customer services - account information updates and statements, grievances and complaints, micro-regulation, compliance and reporting errors and oversights at PAO/POS; Exit of workers at retirement; Transfer of part of terminal accumulations to the selected annuity provider; Terminal lump sum withdrawals, etc. Mr. Bhave will also describe how funds, instructions and papers will flow in this system; the inter-linkages between the CRA and other service providers including PFMs. POPs, PAOs, IRAs, and the banking sector; the responsibilities of the CRA towards consumers as well as the customer experience and services; the capacity which the CRA would be required to build; the time-to-market for creating a central recordkeeping and administration facility; and related issues. This session will also examine the international experience with central recordkeeping of individual retirement accounts as well as ideas and inputs by other service providers

Session Chairperson
U.K. Sinha
Joint Secretary (CM & PR), DEA, Ministry of Finance

Introduction by the session Chairperson:
Who does what? How does this work?
C.B. Bhave
Managing Director, National Securities Depository Limited

Panel discussion

Discussants
A.P. Singh
Director, Ministry of Health & Family Welfare

Sanjay Sachdev
Managing Director, Principal Financial Group (India)

Rajiv Vij
Managing Director, Franklin Templeton Investments

Questions and interaction with the panel

Summary of session by the Chairperson

Managing Pension Funds: Selection of PFMs, products and investment guidelines
In this session, Mr. Rao will describe the international experience with management of pension funds and draw the lessons for India. This session will also articulate the policy options vis-à-vis eligibility criteria and the optimum selection process for PFMs; Corporate structure, restrictions and mergers; Duration of PFM licenses; Distressed scenarios, grounds for cancellation of licenses; Grounds for issuance of fresh licenses in the future; Time-to-market for PFMs; Internal operations and IT systems; Reporting and regulatory compliance; Investment guidelines, investment processes and definition of product choices; Services and responsibilities towards customers; role in increasing coverage; empanelment of retirement advisors and distributors, etc.

Session Chairperson
Dr. Ajay Shah
Consultant, Department of Economic Affairs, Ministry of Finance

Introduction by the session Chairperson

The international experience with selection of PFMs and pension asset management and lessons for India
G.V. Nageswara Rao
Managing Director, IDBI Capital Markets

Panel discussion

Discussants
Rajendra P. Chitale
Managing Partner, M.P. Chitale & Co.

Deepak Satwalekar
Managing Director, HDFC Standard Life Insurance

Rajiv Vij
Managing Director, Franklin Templeton Investments

Alok Vajpeyi
President, DSP Merrill Lynch Fund Managers

Questions and interaction with the panel


Summary of session by the Chairperson

Costs, fees and charges
Administration and transaction charges and costs, especially with long-term contracts such as pensions, have a nontrivial impact on the net rate of return on pension accretions and on terminal accumulations. Relatively low charges on pension assets build up over multiple decades to significantly reduce accumulations. A fee of one per cent on assets, for example, reduces terminal accumulations by nearly 20% over a 40-year period. Participants in the new system with individual accounts are likely to face a variety of costs, expenses and fees. The policymakers and the pensions industry will need to choose between fixed or variable charges, contribution or assets based charges, or combinations thereof - where each of these options have a varying impact on benefits. Measuring the impact of administration charges for pension funds is very complex. Financially unsophisticated individuals may be unable to accurately assess the various fees and charges and their impact in the new system. Hence the structure and reporting of charges and costs in the new pension system will be of concern to policy-makers. In view of the target group for the new pension system, it will be important to ensure complete transparency and simplicity in the structure of charges as well as to limit the types and number of charges. In the absence of any Government subsidies or contributions, all costs in the system are likely to be borne solely by individual participants (members) and need to be carefully structured. Appropriate fees and charges will also be the single most important reason for continued interest and efficient functioning of the various service providers in the pension system. This session will examine the charges that are likely to be faced by consumers in the new pension system and highlight some policy options in the light of international experiences in this regard

Session Chairperson
U.K. Sinha
Joint Secretary (CM & Pensions), DEA, Ministry of Finance

Introduction by the session Chairperson

The international experience with fees and charges and lessons for India

Irene Cheng
Director (Bancassurance), Principal International (Asia) Limited

Panel discussion

Discussants
C.B. Bhave
Managing Director, National Securities Depository Limited

Ravi Narain
Managing Director, National Stock Exchange of India

Shailendra Bhandari
Managing Director, Prudential ICICI AMC

Shikha Sharma
Managing Director, ICICI-Prudential Life Insurance

Questions and interaction with the pane

Summing up by the session Chairperson

Close of discussions for Day 1

DAY TWO:
04 December 2003

New initiatives by the EPFO
In this session, Mr. Ajai Singh will describe the status of the new initiatives and actions that the EPFO has undertaken towards its reengineering which will improve the efficiency and services as well as pension benefits for the over 30 million workers that EPFO covers. Present reform initiatives outside of the formal private sector stand to gain enormously from the EPFO's experience in achieving impressive mandatory coverage of its schemes


Session Chairperson
Prof. Mukul Asher
Professor of Public Policy, National University of Singapore

Opening remarks by the Chairperson

Overview of current and proposed reengineering initiatives by the EPFO
Ajai Singh
Central Provident Fund Commissioner, Ministry of Labour

Panel discussion

Discussants
Dr. Nachiket Mor
Executive Director, ICICI Bank

Amit Tandon
Managing Director, Fitch India Ratings

Dr. Susan Thomas
Assistant Professor, IGIDR

Debashish Bhattacharyya
Deputy General Manager, Siemens

Questions and interaction with the panel

Summary of session by the Chairperson

Issues and strategies for obtaining coverage
Financial literacy and the ability of workers to understand and efficiently use the pension system will be a key issue in obtaining coverage in a voluntary pension system. This is especially important in the absence of the usual public policy tools and incentives (taxation, guarantees, administered returns) for potential participants to join the system. We are targeting 300 million workers in a situation of low literacy, low financial literacy, small contributions and a negligible impact of tax incentives. Therefore, in order for all this to work, we need a tremendous input of human capital among households in terms of financial planning and the role of the formal pension system. We are faced by a gigantic gap on this front. In addition to public education initiatives, the government can consider some strategic and policy initiatives to improve coverage in this system. This session will examine the policy options and cooperative initiatives that can be considered by the pensions community to improve financial literacy and achieve greater coverage in the new pension system.

Session Chairperson
Anand Bordia
Member (Finance), National Highways Authority of India

Introduction by the session Chairperson

Issues, policy imperatives and strategies for maximizing coverage of the new pension system

Gautam Bhardwaj
Director
Invest India Economic Foundation

Panel discussion

Discussants
Prof. R. Vaidyanathan
Professor, Indian Institute of Management, Bangalore

A. Viswanathan
Additional Central Provident Fund Commissioner
Ministry of Labour

A.P. Singh
Director, Ministry of Health & Family Welfare

Nihal Kothari
Head of Taxation, Hindustan Lever

Questions and interaction with the pane

Summary of session by the Chairperson

Annuities and benefits
The new pension system proposes a withdraw-able and a non withdraw-able (pension) account. Around 60% of the terminal assets in the pension account will be converted into an annuity on a mandatory basis - this will offer the consumer a monthly pension for life. This session will examine the key policy issues and questions that will arise in the event of death or permanent disability of a worker, the likely benefits that are likely to accrue from annuities, the kinds of annuities that are likely to be offered to workers on retirement, as well as the tax treatment of lump sum and phased withdrawals. In this session, Dr. Taket will draw on his international and India-specific experience with annuities markets and present some policy choices in the Indian context.

Session Chairperson
Liyaquat Khan
President, Actuarial Society of India

Introduction by the session Chairperson

The international experience with withdrawals and benefits and lessons for India.

Dr. Nicholas D. Taket
Appointed Actuary, HDFC Standard Life Insurance

Panel discussion

Discussants
Rajendra P. Chitale
Managing Partner, M.P. Chitale & Co

Peter Akers
Chief Financial Officer, Birla Sun Life Insurance

Yvonne Sin
Senior Pensions Economist
The World Bank

Heerak Basu
Director & Consulting Actuar
Watson Wyat

Questions and interaction with the pane

Summary of session by the Chairperson

Regulatory infrastructure and implementation issues: Panel Discussion
Poor returns, inability of pension asset managers to honor their commitments, or institutional failures will have a significant impact on lowering public confidence in the system, and consequently on the entry and continued participation by members. The financial soundness of the pension system, effective entry and selection criteria for pension asset managers, professional asset management experience and capabilities, adequate benefits to members, capital adequacy, individual choice, information disclosure, effective supervision of investment processes and strict adherence to prescribed investment rules are thus of paramount interest to policy makers. This session will examine the global experience with regulating private pension systems, the experience in India with regulating financial markets and the key challenges that the PFRDA is likely to face in this process. This session will also examine the legal issues as well as regulatory overlaps and areas of cooperation between the various financial regulators in this new pension system.


Session Chairperson
Dr. Kirit S. Parikh
Chairman, IRADe

Introduction by the session Chairperson

Panel discussion

Discussants
Yashwant S. Bhave
Additional Secretary, Ministry of Personnel, Public Grievances & Pensions

Ajai Singh
Central Provident Fund Commissioner, Ministry of Labour

Dr. Ajay Shah
Consultant
DEA, Ministry of Finance

Questions and interaction with the pane

Summary of session by the Chairperson


Close of conference