PF managers will have to diversify their portfolios

Our Bureau

Changed scheme

The new

pension system adopted by the Central and 16 State Governments involves changing to a defined contribution scheme from the current defined benefit system

This scheme

has been designed to mitigate the fiscal stress on the Central and State Governments

Bangalore, July 21

The draft investment regulations for pension funds include prudential guidelines to ensure reasonable retirement income to subscribers.

Speaking at a Conference on Pension reforms here on Friday, the Chairman of the Pension Reforms and Development Authority, Mr D. Swarup, said, ``The draft regulation has ensured that pension fund managers will diversify their portfolios."

He said that one of the major challenges for pension reforms was to ensure that the new pension system would provide individual subscribers with an adequate income.

The new pension system already adopted by the Central and 16 State Governments involves migration to a defined contribution scheme.

Currently, the system adopted is defined benefit. The difference between the two is that the defined contribution scheme is funded, whereas the defined benefit liability is unfunded.

About one lakh employees are currently covered under the new pension scheme. The shift to the new pension scheme was triggered to mitigate the fiscal stress on the Centre and States Governments.

The combined liabilities of pensions for civil servants of States and the Centre were estimated at Rs 65,000 crore as at the end of 2004-05.

Huge deficits

The Central Government is currently paying only 8 per cent returns on the contributory pension fund covered under the NPS. However some of the States were paying even lower (5 per cent). In fact, these funds collected for pensions were being used to fund the revenue deficits of the respective State Governments, The Pension Fund Regulatory and Development Authority (PFRDA) officials said. This was largely because the PFRDA was yet to become a statutory regulator since the Bill was yet to be passed. But, Mr Swarup said that the Bill was likely to be passed during the coming session of Parliament. In line with recommendations of the Standing Committee of Parliament, the broad contours of the pension regulations under the new pension scheme have to be placed in the public domain for feedback from stakeholders, he said. The conference is being attended by all the life insurance companies and foreign funds aspiring to make an entry into the Indian pension fund market that is estimated to swell to Rs 2.15 lakh crore by 2015.

(This article was published in the Business Line print edition dated July 22, 2006)
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