India's pension may increase to $ 4,000 cr by 2016

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{image-New Pension Scheme_26102008.jpg}Mumbai, Oct 26: With the New Pension Scheme (NPS) set to be opened soon for a huge workforce in unorganized sector in the country, its corpus is expected to increase to 4,000 crore US Dollars from the current 27 crore USD by the year 2015-16, a research has revealed.

Only about 13 per cent of the total workforce in the country is covered by any formal social security system and the rest 87 per cent under the unorganized sector do not have access to any formal scheme to secure themselves after retirement, the research conducted by Noopur Agarwal at the Northbridge Capital here said. However, concerned over the lack of a social security mechanism for the unorganized sector, the Government and the Pension Fund Regulatory and Development Authority (PFRDA) have initiated measures that among others aims to include huge workforce of this sector also in the NPS on voluntary basis soon. At present this scheme is available to only Government employees.

As per the NPS, the individual employees have the choice in selecting the pension fund manager from among the short-listed managers. Also members can select scheme depending on their risk profile. The allocation between the fund manager and the schemes can be changed by each employee. Employees can maximize their return on Pension fund money with such flexibility. As many as 21 states have opted for the NPS where pensioners' money is managed by three PSU fund mangers.

According to the study, the PFRDA is also considering a proposal of allowing private fund mangers to manage the fund corpus.

Initially, there will be two schemes: one, with 100 per cent investment in government securities and the other with 85 per cent investment in debt instruments and 15 per cent investment in equity and mutual funds schemes.

According to the study, Indian pension funds market has already started witnessing tough competition to corner larger amount of funds to the system. Even before the architecture of the NPS has started, the pension fund market with just three players has become highly competitive.

The SBI's wholly-owned subsidiary SBI Pension Fund (SBIPFPL) started its operations in August this year. Nearly 55 per cent of the total fund corpus would be managed by SBI Pension Fund. The other three fund managers include Life Insurance Corporation (LIC), UTI Asset Management and Industrial Development Bank of India (IDBI).

The PFRDA, established by the Union Government on August 23, 2003, is mandated to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and related matters.

According to the sudy, approximately 2.85 lakh employees were covered under the NPS in January this year. An estimated amount of Rs 1,175 crore (USD 28.5 crore), including the Government's contribution and interest component has been credited into the pension account.

Recently, insurance and mutual fund industry have also started offering pension plans to cater to the need of large unorganized sector. Currently, only 15 per cent of the fund corpus is allowed to be invested in equity markets. Of this, five per cent can be invested directly in equity and the rest 10 per cent through equity linked mutual fund schemes. The PFRDA is also considering increasing the limit of exposure to stock market to earn better returns on the pension amount, the study said.

The study observed that the Government has also stepped up its efforts to extend coverage of formal pension arrangements to the nearly 400 million informal sector workers by introducing NPS which would be based on defined contributions.

The Scheme would be mandatory for new recruits to the Central Government service (except the armed forces). However, there will be no contribution from the Government in respect of individuals who are not Government employees. The contributions and returns thereon would be deposited in a non withdrawable pension account. The existing provisions of defined benefit pension and GPF would not be available to the new recruits in the Central Government service.

In addition to the above pension account, each individual can have a voluntary tier-II withdrawable account at his option. Government will make no contribution into this account. These assets would be managed in the same manner as the pension. The accumulations in this account can be withdrawn anytime without assigning any reason.

According to the study, at the initial stages, there are two Investment options available under the NPS. The subscribers shall have the option of having their pension contributions either invested fully in Government bonds and securities. NPS allows investment of funds upto five per cent into equity and another 10 per cent in equity linked mutual funds.

The proposed pension's legislation would allow foreign funds to buy stakes of up to 26 per cent in pension joint ventures with Indian firms, same as that for insurance firms, the study said, adding, the Foreign Direct Investement limit in the pension funds could be raised to 49 per cent once it is raised in the insurance sector. New pension funds would then be allowed to invest up to 50 per cent of the subscribers money in equity or equity-linked mutual fund schemes.


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