The 7th Annual IIEF Pension Policy Conclave, 2005

In December 2003, the Indian government replaced its central (civil service) pension and PF rules with the new pension (NPS) rules. These NPS rules apply on a mandatory basis to all persons joining service in central (civil) ministries, non-civil departments, autonomous bodies, grant-in-aid institutions and Union Territories after 01 January 2004. These rules explicitly exclude all employees of the Indian Armed Forces as well as civil employees recruited prior to 01 January 2004. Over 100,000 employees have joined central (civil) service since January 2004 and are already covered by the NPS.

Twelve state governments have also notified a revision in their respective pension and GPF rules and announced an identical pension scheme for their own new employees. Many other states are presently evaluating a similar option for their own new employees.

Earlier this year, the Government established the Interim Pension Fund Regulatory and Development Authority (PFRDA) through an Executive Order and appointed a full-time chairman for the Authority. The central government also introduced the Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2005 during the Budget Session (2005-06). This Bill is meant to enable suitable legislation for converting the Interim PFRDA into a statutory regulator for the new pension system. Once the PFRDA Bill is passed by the Indian Parliament, it will also enable the government to offer this scheme under a well regulated umbrella, to the remaining working population which is not already covered by any legislated pension or PF scheme, on a voluntary basis.

In this regard, the Asian Development Bank (ADB) provided technical assistance to the Indian Government, and embarked on the Indian Retirement Earnings and Savings (IRES) survey under a 12-month project commissioned to UNSW and IIEF in early 2004. This survey was administered on a random sample of 40,862 earners across 28 Indian States and was completed in November 2004.

The IRES data was analysed by a team of international and domestic experts engaged by the ADB to produce a set of policy recommendations for extending the NPS to the over 300 million unorganised sector workers. The ADB TA recommendations include public policy options and imperatives for achieving a broad-based coverage of voluntary pensions in India. The (six) TA reports include recommendations related to regulations, PFRDA organisation and management structure, as well as market expansion and coverage, products, access and distribution. This ADB TA has provided a powerful demonstration of an evidence-led approach to public policy formulation.

Over the last few months, the government has also made substantial progress on several important aspects of tax policy. A recent initiative is to establish an expert committee to propose a roadmap for implementing an EET treatment of taxation for financial savings. These initiatives of the government will have an important bearing on retirement savings under existing legislated and voluntary employer-led pension and superannuation plans.

IIEF (which produced the OASIS Report in 2000) is presently assisting the government on pension policy analysis, research and technical assistance on implementation of the new DC pension system. Since 1998, IIEF has hosted an annual pension policy and business conference to provide an objective platform to the pensions policy, regulatory, services and research community to exchange ideas and views related to India's pension reform. This conference is being jointly hosted with the Department of Economic Affairs (DEA), the Pension Fund Regulatory and Development Authority (PFRDA), and the Asian Developed Bank (ADB). It is co-sponsored by India Pension Research Foundation (IPRF), Birla Sun Life Financial Services and Principal PNB Asset Management Company.

This consultation is intended to provide an opportunity to examine the necessary policy and regulatory actions which will shape the retirement outcomes of India's citizens in the years to come. In this context, the conference will also provide an opportunity to the DEA and PFRDA to share the recommendations from ADB TA on pension reforms for the unorganised sector and to obtain useful stakeholder feedback on the same. The conference will also provide a public forum for a broad-based consultation on the proposed legislative framework under the PFRDA Bill, 2005. It will also provide a forum for obtaining direct feedback and comments on the draft regulations issued by PFRDA on 02 September 2005.