The pension bill is welcome, especially the final agreement on it between the government and the BJP. In order to set its fiscal house in order, India has moved away from a defined benefit to a defined contribution regime for individuals who joined government service on or after January 1, 2004. Passage of the Pension Fund Regulatory and Development Authority Bill (PFRDA) will give statutory support to the regulator. It will also remove some of the ineffectiveness of the government which is accused of bringing policy reforms to a halt. The amendment to the Insurance Act has been rejected by the standing committee on finance. FDI in multi-brand retail has been suspended. Based on one’s risk profile, the PFRDA will enable one to opt for assured but low returns or hope for higher but market-linked returns.
The PFRDA is just a beginning. The New Pension Scheme was initially meant for government employees. In May 2009, it was extended to all citizens. This was expected to cause a flurry of investments. But that has only been a trickle. In the past 30 months, only 56,000 odd people became NPS subscribers. The marketing of the product was evidently faulty. There are two ways of doing it. One is to persuade big employers to see the benefit of it and adopt the scheme. The other way is to reward distributors handsomely. This would sell the product. The PFRDA will determine the right kind of investment structures suitable for the retail sector. The objective is to induce the large employers to take up NDS. There is an overlap which has to be eliminated as insurance companies already offer pension products. It would be good to bring all such products under the umbrella of the PFRDA after the regulator is put in place.