PROJECT ON : “INNOVATIONS IN FINANCIAL SERVICE INDUSTRY : PENSION SECTOR”

RADHIKA GUPTA

32 -MBA-14

SEMESTER - 3

INTRODUCTION

• India has a diversified financial sector, which is undergoing

rapid expansion. The sector comprises commercial banks,

insurance companies, non-banking financial companies, co-

operatives, pension funds, mutual funds and other smaller

financial entities.

• Government of India established Pension Fund Regulatory and

Development Authority (PFRDA) to develop and regulate

pension sector in the country.

INDIAN FINANCIAL SECTOR – THE WAY FORWARD

• Market Size - Investment corpus in India’s pension sector is

expected to cross US$ 1 trillion by 2025, following the

passage of the Pension Fund Regulatory and Development

Authority (PFRDA) Act 2013.

• India serves as an example as to how services sector can play

an important role in a country’s economic growth. India is now

eager to open up the pensions sector also to foreign investors.

• Financial services in India still remain largely under-

penetrated and there lies the opportunity for high growth.

• Low penetration in the pension market makes it a lucrative

business segment.

• India also offers a once in a lifetime opportunity for PE funds

to invest in the infrastructure asset class across the board

ranging from core sectors such as power, roads, transport to

social asset classes such as healthcare, education, environment.

NATIONAL PENSION SYSTEM

• To provide social security to more citizens the Government of

India has started the National Pension System.

• The National Pension System (NPS) was launched with the

objective of providing retirement income to all the citizens.

• NPS aims to institute pension reforms and to inculcate the

habit of saving for retirement amongst the citizens.

• NPS has been provided for all citizens of the country

including the unorganised sector workers on voluntary basis.

'SWAVALAMBAN SCHEME’

• To encourage people from the unorganised sector to

voluntarily save for their retirement the Central Government

launched a co-contributory pension scheme, 'Swavalamban

Scheme’ in the Union Budget of 2010-11.

• In this scheme ,the government will contribute a sum of

Rs.1,000 to each eligible NPS subscriber who contributes a

minimum of Rs.1,000 and maximum Rs.12,000 per annum.

This scheme is presently applicable upto F.Y.2016-17.

TO INVEST INDIA MICRO PENSION SERVICES

• IIMPS educates, encourages and enables low income informal

sector workers to accumulate micro-savings for their old age in

a secure, convenient, affordable and well regulated

environment using its scalable and sustainable Micro Pension

model.

• IIMPS-NABARD Rural Micro-Pension Initiative- This

joint initiative is field-testing innovative strategies and secure

micro-payment solutions to encourage and enable SHG

members in 8 districts of 4 States to save for their old age.

• Micro Pension Prepaid Card - Most IIMPS clients do not

have a bank account. Such clients now use their "Micro

Pension Prepaid Card" for cashless transfer of micro-savings

directly to regulated product providers

• CCTs Linked to Retirement Savings by the Poor- The

Viswakarma Scheme (2008) of the Rajasthan Government has

demonstrated that pension co-contributions by the State can

motivate voluntary enrolments and retirement savings

discipline among low income informal sector workers.

• Ujjivan and IIMPS launch Micro-Pension scheme for

women- Ujjivan, one of India’s leading microfinance

institutions in partnership with IIMPS (Invest India Micro-

Pension Services) launched two micro-pension products for

over 10 lakh urban poor women across India.

• Pensions for Overseas Migrant Workers - Ministry of

Overseas Indian Affairs has launched a new co-contributions

based scheme that will encourage 5 million overseas Indian

workers to voluntarily save for their return and resettlement

and old age.

• Retirement Literacy - An innovative pension and savings

literacy toolkit has been developed with NABARD to inform

and educate low income informal sector workers about

pensions, savings and insurance concepts and products.

• Regional Cooperation on Pension Inclusion- ADB and

IIMPS have developed an institutional mechanism for regional

cooperation within South Asia on pension policy design and

implementation strategies targeting the working poor.

PENSION SECTOR REFORMS IN INDIA

Proposed System: Dr. S.A.Dave observed that a regular savings of Rs.3 to Rs.5 per day throughout the working life can rescue an individual from old age poverty, if those funds are invested wisely. He correctly recommended about the future pension system on the basis of the Individual Retirement Accounts (IRA) in the project OASIS report. Here, one is required to hold only one account,irrespective of the number of job changes. The new system consists of the following:

• Points Of Presence (POPs): The place from where one can open the IRA as soon as he starts his working life in any post office or in any bank. All the POPs should be equipped with information technology and telecommunication facilities so that one can access the account from any part of India at any given point of time.

• Depository Participants (DPs): They should be responsible for the centralized record keeping and the individual database management, on being connected with each POP through the centralized depository like NSDL. Lastly DPs should transfer the funds and convey the individual preferences to the respective Fund Managers.

• Pension Fund Managers (PFMs): The total amount of pension corpus is to be handed over to the PFMs who will be responsible to manage the funds as per the preference of each account holder. Moreover, the account holder should have total flexibility to choose the PFM and the DP.