Goodbye 2016, hello 2017

Facebook is at it again. As if I am not sufficiently addicted, it wants to me to spend time stringing together moments of the year gone by, for public consumption. They have had enough of my dull and prosaic existence, I mutter, but Facebook persists. I know how this face-off will end. Facebook is a multi-billion dollar behemoth; me, a poor soul.

A Facebook-esque look back into the year in Indian pensions throws up fascinating episodes.

The ‘orange revolution’ in Indian pensions

For a follower of pensions, this will remain the high point of not just this year, but for many years—a time when the so-called silent and indifferent ‘subscriber’ made policymakers see red. Two events, in close proximity, triggered protests among employees who contribute to the Employees’ Provident Fund (EPF). One, changes in regulation governing withdrawal of provident fund and the other, changes to the taxation of provident fund. Protests were widespread—on the streets and the internet.

For long, cynics like yours truly thought of the employee as indifferent to pension policy. These episodes made us see things differently. What was instructional was how widespread these protests were. These episodes are of greater long-term consequence because they bring home two points. First, employee apathy is superficial and the one-size-fits-all thinking that governs policymaking has to change. Second, reform is needed in trusteeship across pensions.

Convergence in asset allocation

This would have been the high point of the year, but it was upstaged by events mentioned above. The advent of provident fund investments in equities was a key reform agenda for many years. After much resistance, it was introduced and implemented in 2016. Concerns remain since the accounting of these instruments isn’t clear, but overall, the move is in the right direction. While the intended impact of higher returns to employees will accrue over long periods, one foresees other residual outcomes. First, a transformation of the EPFO and it’s role. Second, this results in a gradual convergence in asset allocation of various pension products. A look at the asset allocation of the EPF, NPS and pension products of insurers shows this gradual convergence. One wonders how relevant some of these products will be if this convergence in asset allocation and fees continues, considering that the design of these products and taxation is similar.

Focus on plumbing and execution

The continued focus on improving employee services in retirement benefits was another highlight of the year. It is good to see technology playing an important role in administration of these programmes. Implementation of the Universal Account Number (UAN), while mired in flip-flops by EPFO, remained a focus area. This bodes well for employees and employers alike. A single EPF number programme, when properly implemented, will deliver significant positives in benefits and costs. An immediate positive is the ability of the employer to focus on compliance rather than transactional efficiency. We are still far from there considering the complexities involved in an implementation of this scale, but one likes the doggedness with which the government and the EPFO have pursued this project.

The long wait for portability between programmes continues. Portability of pension balances between programmes still remains a distant dream. Despite the government’s stated intention to permit portability (remember the last two Union Budgets announced portability from PF and superannuation to NPS), operationalising this has not commenced. While one likes to believe that this is a consequence of simpler issues such as taxation and operational guidelines, one suspects that more complex issues confront the matter. Multiple regulators and jurisdictions will be a maze that has to be traversed before portability becomes a reality. It will also not help that, in its current form, portability is a one-way street (towards the NPS).

Themes for 2017

If 2016 was a year that initiated change, 2017 should be a year of continuation.

1) Resolve the accounting uncertainties around equities in EPF. This uncertainty bears significant risks on EPFO and long-term risks on the savings of millions of employees.

2) Pursue the implementation of UAN with continued rigour. Consult employers in the implementation to simplify their role.

3) Allocate spends for employee communication programmes. These will go a significant way in employees appreciating various products and the need to save. As of now, these savings are solely due to regulatory compulsion or taxation.

4) Operationalise portability between EPF, superannuation and NPS through legislative and operational changes. Set the stage for two-way portability.

None of these are big bang changes but changes need not be big, to be of significance.

Amit Gopal, senior vice-president, India Life Capital Pvt. Ltd .