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Thursday, Sep 04, 2003

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New pension scheme only after 5 months

Our Bureau

New Delhi , Sept. 3

THE formal launch of the proposed new defined contribution pension system is likely to take place during the last quarter of the current fiscal.

"Keeping the need to do the preliminary groundwork it could take anywhere between 4-5 months to make the scheme operational," the Joint Secretary, Ministry of Finance, Mr U.K. Sinha, on Wednesday said at a seminar jointly organised by Assocham and India Invest Economic Foundation (IIEF).

He said that the process would begin with the setting up of the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Record Keeping Agency (CRA) that would be the repository of collections by various points of presence (PoP) under the scheme.

"The CRA might take three months to develop the necessary software and to interface it with the PoPs," Mr Sinha said.

He said that the Government was considering `cost and fees' as one of the major criteria for selection of the pension fund managers (PFM). Thus, whichever funds bid the lowest in terms of costs and fees for managing the pension monies is likely to be given the licence. However, he said that a formal decision on this has yet to be taken.

On the number of PFMs to be allowed, Mr Sinha said that though the initial plan to have only six such entities has been dropped, there would be a higher cap on the number of players to be licences initially. "There will be a number (on the total PFMs to be allowed) which would be decided soon," he said.

Earlier, speaking at the seminar, the Labour Minister, Mr Sahib Singh Verma, said concern that the scheme did not provide safeguards for investors against mismanagement by fund managers and the absence of the facility of family pensions. He felt that the new scheme was likely to have high administrative costs.

He said that the absence of a provision for family pension `clearly brought out lack of basic protection if the bread-earner of the family passed away.' However, he said that his Ministry had no objection to the proposed scheme.

On the employees provident fund (EPS) scheme of the EPFO, which comes directly under the Ministry of Labour, Mr Verma said that he would try to maintain the 9.5 per cent rate of interest during the next fiscal. "Next year (2004-05) also we may continue with 9.5 per cent interest rate," he said.

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