Few Indians have social security to see them through their long years of retirement. The only lucky ones are those who have jobs in the organized sector and those employed by the government. But nine out of 10 Indian workers toil in the unorganized sector where there is no job protection or a safety net.
This is why pension reform is an utter necessity. Yet, progress has been far too slow for comfort.
The government has taken a few baby steps of late though much more needs to be done. The benefits of that are already evident for the 40 million workers in the organized sector who have accounts with the Employees Provident Fund Organization (EPFO).
A front-page story in Mint last week said that the EPFO trustees are likely to pay 8.5% to account holders without dipping into reserves, the first time this is happening in seven years. Part of the reason is competition.
The EPFO fund used to be run by a single fund manager till recently. Now, ICICI Prudential, HSBC and Reliance provide competition to State Bank of India (SBI), the old monopolist. Competition has kept all four fund managers on their toes, and depositors have benefited as a result.
Interestingly, SBI has been the most successful pension fund manager.
Meanwhile, the previous United Progressive Alliance government took the important decision to open the New Pension Scheme, which was designed for government employees, to workers in the unorganized sector.
In an interview with The Wall Street Journal that was republished in this newspaper on Wednesday, Pension Fund Regulatory and Development Authority chairman D. Swarup said that he does not expect the New Pension Scheme to gather much speed right away: he estimates the scheme will have not more than 25 million members in the first four or five years.
True, that’s a drop in the ocean: India’s total labour force is at least 500 million. But it’s a start. The spread of the New Pension Scheme and higher returns that will come because of competition among fund managers will hopefully chisel away some of the unnecessary opposition to pension reforms in India.
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