New pension system in the offing

New pension system in the offing
ENS ECONOMIC BUREAU

NEW DELHI JANUARY 17: Post-retirement blues for the pensionless thousands in India will soon be a thing of the past if the Cabinet approves a scheme by Project OASIS. Under the scheme, a person can choose his own pension scheme and determine the amount he should get as pension after retirment.

The final report of Project OASIS (old age social and income security) presented to the Prime Minister by the Ministry of Social Justice and Empowerment, has recommended a new pension system based on individual retirement accounts (IRA). The report will now be circulated to different economic ministries before the Cabinet takes a final decision on it.

Under it, any person can open a single IRA with the pension system early on in his career.

A person availing of this service will get an IRA number into which he can save and accumulate his assets during his working life. The deposits will be subject to a minimum of Rs 100 per contribution and Rs 500 in total accretions per year. There will be no pressure to makefixed monthly contributions and the person will be free to decide the frequency of accretions into their accounts.

This account will stay with the individual irrespective of job changes, spells of unemployment, and can be accessed from any place in India. The account holder will also have access to his account balance statement that show his assets. All through, the account holder will have the power to control the manner in which his pension assets will be managed.

Professional fund managers and a regulatory body will ensure that the returns from this scheme is higher than fixed returns from public provident funds, which now stand at 11 per cent. The Indian Pensions Authority (IPA) along with the fund managers will help protect the money from any kind of fraud or risk, the report has suggested.

Under the proposed scheme, there will be six fund managers who will be given the task of managing funds. Each fund manager would have to offer three schemes -- safe income, balanced income and growth incomegiving 18 schemes in all, for people to choose from. In the safe income style, fund managers will have to guarantee that they will not under-perform the weighted average returns of all managers in that style by more than two percentage point in a year. If they do, they will be required to make-up for the shortfall.

For people who cannot decide, there will be a `default allocation'. Under it, accretions will be placed into the safe income style and with the scheme that has provided the highest return over the last one year.

The report has suggest that the regulatory body -- IPA -- be located in Mumbai and should be an autonomous government body. Its board should comprise entirely of professionals. Its core function will be to oversee and supervise the functioning of the pension system and resolve problems.

They will also have to make incremental improvements on a regular basis. It will need enforcement machinery that imposes penalties upon errant agents and evolve a regulatory framework on an ongoingbasis to avoid recurrence of lapses.

IPA should also have a redressal forum that will help people get help get their problems resolved, the report suggests.