New Delhi: The government has set up a high-level committee, the Forum for Regulatory Coordination and Development of Pension Products, bringing together top financial regulators and key ministries to streamline India’s fragmented pension system and unlock opportunities in the hugely under penetrated sector.
Currently, only around 12% of India’s workforce is covered by formal pension schemes.
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Chaired by the secretary of the Department of Financial Services, the forum will include the secretaries from the ministries of corporate affairs, labour, revenue, and coal, along with the heads of Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (IRDAI), the International Financial Services Centres Authority, Reserve Bank of India (RBI) deputy governor, and the central provident fund commissioner at the Employees’ Provident Fund Organisation (EPFO).
Announced by finance minister Nirmala Sitharaman in this financial year’s Union budget, the forum aims to create a unified regulatory and supervisory framework, create new pension products, and deepen retirement coverage in a country where large sections remain outside the social security net.
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According to Wednesday’s finance ministry notification on the forum, the joint secretary in charge of the pension reforms section in the finance ministry will be the secretary of the forum. The chairperson may also invite any person whose presence is deemed necessary for any of its meetings. The forum will meet “as and when deemed necessary by the chairperson”, the notification said without giving further details.
The finance ministry said the forum will “provide a platform for harmonizing regulatory practices, investment standard across pension products, strengthening consumer protection, grievance redressal and ensure robust systemic risk management of assets under management”.
The main aim of the forum would be to develop a common regulatory and supervisory framework, including a grievance redressal mechanism, for all retirement financing schemes.
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The forum will devise a framework for pension and regulatory reforms. Any exercise to merge authority of different regulators on pension will need the Union cabinet’s approval.
“The growth of any nation depends on the robustness of the social security framework with pension and retirement solutions being at the centre of it. The recent government reforms will help address the supply and demand side of the pension framework from the industry and the consumer standpoint, deepening the ability to mobilize long-term savings from customers into long term infrastructure investments through the pension vehicles,” said Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat.
The terms of reference for the forum say it will deal with issues relating to regulatory consistency for greater transparency and predictability; empower subscribers through facilitation of portability, strengthen consumer protection and put in place a robust grievance redressal system.
It will also work on the framework for the development of the pension market through product development and advocacy, and create awareness among subscribers towards pension as a financial product. It will also focus on promoting the adoption of international best practices in pension regulations and supervision.
The forum will have the mandate to help develop new products to raise India’s pension coverage. There is a need for new pension products in the country as the subscription to National Pension System is voluntary and the pension scheme under the EPFO is not mandatory for wage ceilings beyond ₹15,000 a month.
The forum will also explore ways to bring all pension schemes under the direct supervision and administration of a unified entity to ensure better penetration of pension products and streamlined operations while preventing any supervisory overlaps.
Apart from the NPS, India currently has multiple pension (accumulation) products such as the Employees Provident Fund, Public Provident Fund, retirement funds from asset management companies (AMCs), and life insurers. These products have different tax treatments and benefits, creating a complex pension structure that discourages wider participation.
In addition, there are other government schemes such as the Atal Pension Yojana, the Pradhan Mantri-Shram Yogi Maandhan Scheme (PM-SYM), the National Pension Scheme for Traders and Self-Employed (NPS-Traders).
In India, the pension sector is hugely under-tapped. The country’s pension assets, constituting roughly 17% of GDP, are far short of the OECD (Organisation for Economic Co-operation and Development) average, where they typically exceed 80%, revealing a stark disparity in retirement readiness, according to the government’s economic survey.
There is a growing need for a robust pension sector due to the ongoing shift in its demography. According to finance ministry, India’s demographic landscape will see a profound shift in the coming decades. By 2050, one in five Indians will be over 60, and by 2047, and the elderly will outnumber children. With 19% of the population projected to be elderly by mid-century, securing financial independence through inclusive pension schemes is a vital need.
India currently has a mesh of overseeing agencies in the pension space, therefore the need for the forum to streamline. The PFRDA regulates and manages the NPS, Unified Pension Scheme (UPS), APY, while pension products by insurance entities are regulated by the IRDAI.
Market regulator Sebi does not directly regulate pension products, but it has a role in regulating the underlying financial instruments and markets in which pension funds invest. The Public Provident Fund (PPF) is regulated by the ministry of finance. The Central Board of Trustees oversees the Employees’ Provident Fund Organisation (EPFO) that is under the labour ministry.