INDIA - India's labour and finance ministries have locked horns over the introduction of pension reforms. While the labour ministry has suggested that the reforms be introduced in a phased manner the finance ministry wants a nationwide implementation of reforms at the earliest.
Senior officials close to the ministry said the pension reforms are likely to be part of the budgetary address for 2002-03. The dissenting note of the labour ministry is, however, likely to be set aside in view of the government being hard pressed for long-term funds to finance the infrastructure sector.
The report on pension reforms by the Insurance Regulatory and Development Authority (IRDA) recommended an extension of tax breaks on contributions to pension schemes and annuities. IRDA also recommended that the initial development expenses of the pension fund market should be borne by the pension funds authority, which is to be set up shortly, while subsequent maintenance and administration costs should be shared by fund managers.
IRDA has submitted its recommendations to the group of ministers (GoM). N. Rangachary, chairman of IRDA, emphasised that in volatile markets with interest rates moving southwards, pension fund managers cannot assure guaranteed returns to contributors.
We have seen what has happened to schemes that have promised returns in recent times.
“The Life Insurance Corporation had to withdraw its previous Bima Nivesh scheme on the advice of IRDA, Rangachary said.
IRDA has indicated that banks, insurance companies and mutual funds can act as pension fund managers.
The proposal to float a pension scheme for workers in the unorganised infrastructure sector has run into difficulties with several members of the GoM questioning the need for a separate scheme. They contended that there were several pension schemes already available in the country and these could be extended.
And sources at the finance ministry said that only insurance companies and not mutual funds will be allowed to handle pension funds. The funds are now appealing to the chairman of SEBI, G. N. Bajpai, asking him to present their case to the government.
However, India’s Birla Sun Life Insurance Company is set to enter the pension segment, by introducing a product by the end of 2002. The unit linked product is in the final stage of clearance by IRDA. And IDBI Principal Asset Management Company has approached the Securities and Exchange Board of India (SEBI) to launch a pension-related scheme early in 2003.
IRDA has also asked life insurance companies to come out with pension products for the underprivileged. In their first formal meeting with the regulator to discuss changes in the pension sector, life insurers were asked to think of ways and means whereby a social security package could be developed for this section.
Around 90% of the Indian population is still not covered by any kind of pension or provident fund scheme and there is an immense potential for growth in this sector.
This week's edition of Professional Pensions is out now.
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