Govt plans executive order to hasten pension reforms

MUMBAI: The government is planning to bring into effect its new pension initiatives through an executive order to hasten the reforms.
The new initiatives are creating a funded defined contribution pension programme for new government employees and inviting private companies to manage these funds. Indicating this at a CII workshop on pension, Prodipto Ghosh, additional secretary, department of economic affairs, said foreign participation in pension management will be allowed if the participants have the depth of experience in managing defined contribution plans.
According to Mr Ghosh, asset management companies will have a role to play during the accumulation stage of the pension, while insurance companies were better equipped to sell annuities after retirement. He said there would have to be trade-offs between keeping products simple and allowing fine tuning of plans for individuals. The government will also attempt to strike a balance between prescribing high capital requirements and ensuring that management costs were low. He said the government will have to bear transitional costs while moving from a defined benefit to a defined contribution plan.
Speaking at the workshop, Donald Stewart, CEO of Sun Life Financial, said although defined contribution plans are more transparent and help individuals with investment choices, they also end up underwriting both longevity risk and investment risk. This means the individual will receive reduced pension benefits if the market provided negative returns at the time of retirement.
“I see a strong role for defined contribution plans. But as someone who also supports defined benefit plans, I am concerned about the impacts arising from increasing moves to mark pension liabilities to market. This short term pressure at a time of stress in the capital markets is likely to drive corporations to reduce their pension benefits in a world where the need for long term savings and retirement income is more important,� he said.