Monday, May 31, 2004

Finance: Pension problems

News from Business Standard

Employees' pension scheme has a gap of Rs. 1,700 crores, says the article. This is because of keeping a higher fixed rate of interest of 9% on the money deposited with EPS.

The article suggests that to get out of this muddle, the government should resort to the following:
  • Market-linked rates of return instead of assured pension
  • Government’s 1.16% contribution to be withdrawn
Another consideration should be for the government to completely quit the pension sector - in phases, and leave it to private players. Across the world, private pension funds manage pension. Even government employees have their pension managed by trustee pension funds. The functioning of these pension funds are fairly transparent. We know where they invest their money. However, in India, in the guise of offering a fixed return, the EPS does not tell its constituents how they have been managing their money. With the kind of large funds they have in their hands, they could very well generate a larger than 9% return consistently, with a prudent management team. And this wouldn't require the contribution at all from the government.

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