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Pension Funds in India Take Global Route
Monday, May 21, 2007

Social security systems in India are getting increasingly out-of-date with growing needs of the retiring population, and the government has acknowledged the need for reform in the pension scheme.The Interim Pension Fund Regulatory and Development Authority (PFRDA)has invited Expressions of Interest for sponsoring a Pension Fund under the New Pension Schem.

This extraordinary move was taken last week to invite private pension fund managers to formulate a new pension scheme for employees. The proposal to open the pension fund to the private sector has however, not been welcomed by the Left parties, who are concerned that the private sector would divert the huge corpus of pension funds (approximately Rs.1,700 crore) to the equity market

The invitations to private players have gone ahead, nevertheless. Limited pension reforms have been attempted to accommodate foreign funds in entities which would be established by nationalized banks, mutual funds and financial institutions

Three asset management companies would be permitted to manage the pension funds of state and central government employees who took up employment after 2004 The passage of the proposed Pension Bill would be a turning point for fund management business in India.

Inspired by the very successful 401(K) pension scheme in the USA , which allows employees to fix a portion of their salary towards investment in mutual funds, small investors in India could greatly benefit if such legislation is voted for.

It would be interesting to know that India accounts for 16.3% of the world’s population, but our 70 million elders constitute only 12.5% of the world’s senior population. Of these only 10% receive pension, while the remaining are forced to work or depend on their children. With continuous improvement in health services, the young and middle aged population is likely to live longer. Hence, providing for a secure retirement through investment in assets is imperative.

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