Fiscal subsidy unlikely for new pension plan
There should be no tax cushion for the new pension system so as to avoid funding problems like the assured return schemes of the erstwhile UTI, according to the pension fund regulator.
By TNN |
DELHI: There should be no tax cushion for the new pension system so as to avoid funding problems like the assured return schemes of the erstwhile UTI, according to the pension fund regulator. It has also offered a “gilt option” to encourage more people to switch to the new pension system, without being scared that their savings will be channelled into equities..
In a paper to the chief ministers of all states at the ongoing National Development Council meet, the finance ministry said that “fiscal subsidy” will not be sustainable for the new pension system. It has also said that “India has substantial experience with funding difficulties” in the assured return schemes of the former UTI. Financial problems have also occurred in the Employees Pension Scheme of the EPFO, the railways pension scheme, etc. “Therefore, there is need to have a pension system with the discipline of a sound foundation using defined contributions, and there is no liability for the government regarding assurance of returns or subsidies,” the paper says.
“The PFRDA can also consider providing a totally safe option, whereby the entire (pension) accumulation will be invested in G-secs,” the paper says. This could be in lieu of the current safe option, for those people who are scared of even putting 10 % of their savings in equities. It would be one of the basket of options that potential subscribers would have, to put their accumulations in with the fund managers. The PFRDA will choose a set of fund managers who will invest the monthly deposits to be made by the new government servants. There will be three investment patterns with varying degrees of exposure in equities — safe, balanced and growth funds. These sums will form the corpus from which contributors will draw pension after retirement.
On Tuesday, the finance minister is expected to devote a sizeable portion of his speech on the need for pension reforms. “The (PFRDA) bill needs to be passed quickly to end the uncertainty on the pension reforms front,” the paper says. The Left parties supporting the government have strongly opposed the bill.
The paper says pension liabilities of the Centre and state governments account for 1.64 % of the GDP, which drains resources from competing social and developmental goals.
In a paper to the chief ministers of all states at the ongoing National Development Council meet, the finance ministry said that “fiscal subsidy” will not be sustainable for the new pension system. It has also said that “India has substantial experience with funding difficulties” in the assured return schemes of the former UTI. Financial problems have also occurred in the Employees Pension Scheme of the EPFO, the railways pension scheme, etc. “Therefore, there is need to have a pension system with the discipline of a sound foundation using defined contributions, and there is no liability for the government regarding assurance of returns or subsidies,” the paper says.
“The PFRDA can also consider providing a totally safe option, whereby the entire (pension) accumulation will be invested in G-secs,” the paper says. This could be in lieu of the current safe option, for those people who are scared of even putting 10 % of their savings in equities. It would be one of the basket of options that potential subscribers would have, to put their accumulations in with the fund managers. The PFRDA will choose a set of fund managers who will invest the monthly deposits to be made by the new government servants. There will be three investment patterns with varying degrees of exposure in equities — safe, balanced and growth funds. These sums will form the corpus from which contributors will draw pension after retirement.
On Tuesday, the finance minister is expected to devote a sizeable portion of his speech on the need for pension reforms. “The (PFRDA) bill needs to be passed quickly to end the uncertainty on the pension reforms front,” the paper says. The Left parties supporting the government have strongly opposed the bill.
The paper says pension liabilities of the Centre and state governments account for 1.64 % of the GDP, which drains resources from competing social and developmental goals.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
