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Sarbajeet K. Sen

"PPF has lost its relevance as a retirement planning scheme. It is mostly used by depositors as a tax-planning instrument," Mr Dave said. He favoured phasing out of the scheme to enable more funds to flow into the pension sector.

New Delhi , Sept. 5

THE proposal of a gradual dismantling of the public provident fund (PPF) scheme to provide a prop to pension reforms has found support from a powerful quarter - that of Dr S.A. Dave, Chairman of Project Oasis (Old Age Social and Income Security) who is widely regarded as the architect of the ongoing pension reforms.

The Oasis Report, that kicked off the debate on pension reforms in the country a couple of years ago, has been the basis on which the contours of the proposed pension reforms have been drawn out.

"PPF has lost its relevance as a retirement planning scheme. It is mostly used by depositors as a tax-planning instrument," Mr Dave said, indicating that he would be in favour of the phasing out of the scheme to enable more funds to flow into the pension sector.

Dr Dave was earlier the Chairman of the Securities and Exchange Board of India and Unit Trust of India. The Government is considering the gradually phasing out with the PPF scheme so that deposits that flow into it are re-routed to the pension schemes to be offered by pension funds managers (PFMs).

Commenting on the proposed reforms, Dr Dave said he did not expect the number of PFMs who would be granted licences in the first phase to be much more than the cap of six players suggested by Oasis. "Even in the insurance sector where there was no cap, the number of players is not too large. The pension sector initially would not be very big to accommodate too many PFMs," he said.

Dr Dave also supported the Government's initial proposal to allow only mutual funds to take up the business of PFMs. "World over mutual funds take care of the accumulation stage. Even insurance companies hand over the funds collected by them to the mutual funds since investment expertise is with the funds and not the insurance companies," he said.

According to plans, insurance companies would move into the picture at the annuitisation stage with subscribers requiring to compulsorily set aside 40 per cent of accumulations at retirement to buy annuities from life insurance companies.

Dr Dave also fully backed the proposal to allow up to 50 per cent of the funds in the growth schemes to be invested in equities. "The long-term returns in equities have always been higher than investing in debts instruments," he said, pointing out that equity investment by pension funds is a global trend.

The Government's is expected to kick-off the new pension structure by the end of the current fiscal. The scheme would be compulsory for all new recruits in Government service from the time it is notified and also to those in the unorganised sector desiring an income security at old age.

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