The Hindu Business Line : Uncertainty on pension authority

THE NEW PENSION fund authority, which came into existence from April 1, presides over a segment of the asset management industry whose contours can only be described as still evolving. Initially, the authority is expected to regulate the management of accumulations of Central government employees joining the ranks after January 1, 2004. But there is still some uncertainty about whether the authority, and the industry that will evolve in its wake, would at all take off in the foreseeable future. For, the present arrangement is only an interim one, devoid as it is of statutory backing. The Left parties, whose support is vital for the passage of the Ordinance into law, are opposed to any move that alters the terms of pension benefit for Central government employees which the new law additionally seeks to attempt. In theory, the Government has the option of seeking the support of the Opposition National Democratic Alliance which, after all, conceived of the scheme and ought, therefore, to support its enactment. But, then, the NDA's recent voting record would suggest that it is not proof against sacrificing economic interests at the altar of political expediency.

Even if the NDA does choose to support the issue, it may turn out to be but a pyrrhic victory for the Government, as a miffed Left might well regard the outcome as crossing the proverbial `Lakshman Rekha' of coalition politics and not hesitate to bring it down. In the circumstances, the Government could be pardoned for entertaining serious misgivings about the political wisdom of pressing ahead with such a measure. Of course, the Left might even now be persuaded to support the setting up of such a regulatory authority if the new recruits to the government are kept outside its purview or at least given the option of joining it only if they think that it is superior to the existing pension scheme administered by the government. The Government could even consider giving these employees a hybrid option where, for a small sacrifice in their existing `defined' pension benefit, they could have the additional privilege of participating in an externally managed and administered scheme. It is worth bearing in mind that a `defined benefit' is not inherently superior under all circumstances to a scheme based on `defined contribution', which the new scheme seeks to put in place. If this message can be effectively communicated to the staff, it is possible that the scheme will attract quite a few of the new recruits if not even the existing employees.

No doubt, the compromise arrangement suffers from the disadvantage of depriving the authority and, by extension, the pension fund industry of the critical mass that a captive pool of 40,000 new recruits of the government would have afforded. To that extent, the necessary infrastructure such as asset management companies to administer the accumulations or intermediaries to keep record of the corpus, etc., would take a longer time to set up. But it would at least have the advantage of starting off with a set of willing participants and one which over the years will be seen as having proved itself in the crucible of the market place.

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