The Hindu Business Line : New pension structure has options for the risk-averse, says Swarup

As the new pension regulator, Mr D. Swarup, assumed office on Friday, the pension reform wheels are under threat of being jammed indefinitely by strident political opposition from the now-powerful Left parties.

However, Mr Swarup is not unduly perturbed on the developments.

"It might take time, but I am confident that a consensus would emerge on moving towards a defined contribution system (from the earlier defined benefit system).

"There were delays also in insurance sector reforms. But it did ultimately happen. I am not saying that history would definitely repeat itself but we would try our best to iron out all differences," Mr Swarup told Business Line on the eve of his assuming office as the Chairman, interim Pension Fund Regulatory and Development Authority (PFRDA) on April 1.

Pointing out that the new pension structure would go a long way in establishing an old age income security system for all sections of the population, Mr Swarup said that global experience shows that the defined contribution system has been successfully adopted in many countries.

"It is working well even in countries such as Sweden which shifted over to the new system in the late 1990s," he said.

Though the fears over the risks of investment of pension monies in equities could be a legitimate one, the Government has taken adequate care to address the concerns while devising the proposed new structure, Mr Swarup said.

"We have provided for the `safe' scheme which we call `Option A', where pension accumulation would be invested only in rated corporate debt and in Government securities.

"Those who are risk-averse can choose to have their pension savings invested in the avenues prescribed under this option," he said.

He pointed out that the structure provides complete freedom to the individual to choose whichever mode he or she wants the pension savings to be invested.

The other options - Option B (Balance scheme) and Option C (growth scheme) - allows progressively higher investment in equities and are meant for persons with higher appetite for risk.

Mr Swarup said that the proposed structure also takes care of the worries of those who are averse toward handing over their pension savings to the private sector.

"There would be at least one public sector pension fund manager. We could have more than one public sector fund manager if we find there are suitable applicants," he said. The total number of pension fund managers to be licensed would be determined by the PFRDA.

The Government had in December promulgated an Ordinance to set up a pension regulator.

However, the Ordinance was allowed to lapse due to the political opposition to the reforms.

The proposed Bill to replace the ordinance has now been referred to a Parliamentary Standing Committee.

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