The 6th annual IIEF Pensions Sector Summit '04
08 - 10 November 2004, The Taj Mahal Hotel, New Delhi, India

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After 6 years of public debate and evaluation of policy alternatives, India has embarked firmly on the path of pension reforms. Today, there is considerable policy consensus on the imperatives for reforming existing provisions which cover around 50 million formal sector workers and for establishing new formal mechanisms for old age income security for the nearly 350 million unorganized sector workers in India. Importantly, the reform strategies being considered include an increased role for privately managed, defined contribution schemes with improved governance, competition and individual choice. Some significant milestones in this direction are:

•  the introduction of the New Pension System (NPS) which replaces the existing PYGO DB pension provision    and is mandatory for persons joining central government service from 01 January 2004;
•  the establishment of the interim Pension Fund Regulatory and Development Authority (PFRDA); and
•  the recent announcement by the Union Finance Minister of the Government's intent to proceed with a new    legislation for the New Pension System (NPS).

The New Pension System (NPS) introduced by the Government of India is South Asia's first DC pension scheme with individual retirement accounts, product choices, professional funds management by competing private fund managers, and portability through centralized recordkeeping and administration. Participation in this scheme is mandatory for all new employees of the central government (excluding armed forces). This scheme will be offered to other employers and workers including state governments and informal sector workers after a few months. The Department of Economic Affairs (DEA) under the Ministry of Finance has been charged with the responsibility of setting up the PFRDA and implementing the legislative, policy, regulatory and institutional framework for the NPS. While its broad policy framework is already in place, the DEA is considering several important questions and policy choices as this new pension system is translated from ideas to implementation. These questions relate to the quality of service providers (pension fund managers, recordkeeping agency, distributors, etc.), their functional roles and obligations to members, as well as policies and strategies for obtaining wider coverage and maximizing retirement benefits. Over the last few months, the DEA has circulated several draft policy proposals related to the CRA, PFMs, POPs and other aspects of the NPS for public comments and inputs.

In parallel, almost all State Governments are becoming increasingly conscious about questions of design and fiscal sustainability of the retirement benefits for their own employees and pensioners. Several States including Andhra Pradesh, Tamil Nadu, Rajasthan and Himachal Pradesh have already decided to adopt the NPS for their own new employees while several other States are actively considering this option. A number of State Governments are also evaluating wider reforms and improvements to retirement provisions for their existing employees. However, a majority of States are waiting for the regulatory and institutional capacity of the new central government pension system to be in place before they formally announce a strategy for their own civil servants.

The Employees' Provident Fund Organization (EPFO) under the Ministry of Labor, administers one of the largest publicly managed, contributory provident fund and pension systems in the world with mandatory participation by nearly 40 million workers employed in the formal private sector. The EPFO has recently announced several significant improvements and reform initiatives which include re-engineering of EPFO's business processes, centralized recordkeeping and administration, improved services and information flow to members, and speedier access to their savings at retirement. The EPFO is also reviewing its investment guidelines and fund management regulations to enable it to maximize benefits under the DC Employees' Provident Fund (EPF) scheme as well as to meet its obligations under the DB Employees' Pension Scheme (EPS). This review and reform will be especially important for the 2564 exempt provident funds which are allowed to manage the EPF contributions of around 4 million employees and are mandated to provide similar returns as announced by the EPFO.

And finally, the Government has stepped up its efforts to extend coverage of formal pension arrangements to the nearly 350 million informal sector workers. In this direction, the DEA has recently finalised a technical assistance project with the Asian Development Bank (ADB) to evaluate appropriate policies and institutional arrangements to motivate these excluded workers to voluntarily participate in formal retirement plans. This TA (awarded to a consortium of UNSW and IIEF) will assist the policymakers and the PFRDA in achieving greater clarity on the specific needs and constraints of this audience and in designing appropriate products, access and delivery mechanisms as well as benefit and exit policies which can serve India's huge, widespread and diverse informal sector workforce. This TA targets self-employed professionals, contract and casual labor, agricultural workers, farmers, women workers, etc. and includes a nation-wide random survey among 43,000 households to be completed by November 2004.

In this environment, Invest India Economic Foundation (IIEF), which produced the Project OASIS Report for the Government of India in 2000 and which is presently assisting the DEA as a consultant on pension reforms and system implementation under the World Bank's IDF Grant, is hosting its 6 th annual pension sector policy and business forum at New Delhi. This forum is being supported by the Department of Economic Affairs (DEA), Ministry of Finance. It is sponsored by the Asian Development Bank (ADB) and cosponsored by India Pension Research Foundation (IPRF).

Over 100 pension sector experts from India and abroad including policymakers, regulators, administrators and managers of pension funds, service providers and intermediaries, economists and thinkers representing central and state governments, government departments and ministries, regulatory bodies, large private and public sector firms, multilateral agencies, research institutes, financial firms including AMCs, banks, insurers and micro-finance institutions will participate in this program.The key objectives of this year's forum are:

•  to provide a platform to policymakers, regulators and administrators of pension programs in India to discuss    the policy direction, implementation ideas and operations of the NPS with domestic and overseas experts    and market participants, as well as to obtain useful information, analysis and feedback from a wide    spectrum of participants and potential users of this system;

•  to provide state governments with accurate information on the NPS administrative and policy framework to    enable them to seamlessly adopt this system for their own new employees;

•  to arm State Governments with new ideas and concepts in pension reforms including policy choices in    design and structure, mechanics of systemic and parametric reform, transition and implementation issues,    etc. based on India's new pension reform and lessons from around the world;

•  to provide senior management from domestic and international financial firms with an overview of India's    pension sector, the emerging policies and business opportunities from India's pension reform, as well as the    international experience and best practices in managing and maximizing retirement savings, structuring    retirement benefits, regulation and governance, etc.;

•  to provide a platform to policymakers, regulators, pension economists and practitioners to examine the    international and domestic evidence with consumer actions, attitudes and behavior towards retirement    savings, as well as the role for public policy, education and cooperative industry action in achieving    voluntary coverage with DC plans from a cross section of the population; and

•  to provide a unique opportunity for other countries in South Asia to showcase their efforts and learn from    each other's experiences with pension reforms and obtain direct feedback in this area from leading global    experts. This forum will be an important first step towards cultivating a South Asia regional pensions    community.

The forum will begin with a one-day national NPS workshop for State Governments . The workshop will focus on the policy, regulatory and institutional framework of the NPS. Here, participants will gain an insight directly from practitioners, economists and policymakers on the core principles and objectives of the NPS as well as on the roles of the various service providers including the central recordkeeping agency (CRA), pension fund managers (PFMs), points of presence (POPs) and other intermediaries. This workshop will also examine the policy choices, processes and implementation issues for parametric and systemic reforms to pension provisions for existing civil servants.

This workshop will be followed by a 2-day pensions policy and business roundtable . This roundtable will be an opportunity for the Department of Economic Affairs to discuss their ideas, initiatives and plans regarding system implementation, policies and coverage strategies with some of the top pensions economists and experts in the world as well as with practitioners, state and central government departments and others. The roundtable will provide a platform for a healthy debate on issues of governance, supervision and regulation; the institutional architecture for administration and fund management; benefit structures, exit policies and taxation; coverage and related issues of product design, access, distribution, financial literacy, etc. The roundtable will also update participants on the status and plans of other reform initiatives by the EPFO, some state governments, etc.

The DEA, ADB, IIEF and IPRF trust that this year's forum will provide useful input for efficient and speedy implementation of the New Pension System and its wider acceptance and adoption. We also trust that this forum will encourage participants to share and benefit from each others experiences and plans for improving post-retirement consumption for India's workforce.