For any central government employee to recount his/her plight of walking into any of the 780 Pay and Accounts Offices (PAOs) to secure information on why his/her monthly pay cheque was credited at Bellary instead of at Balasore, he/she will probably call it a nightmare. Welcome now to the army of government accountants who will switch roles to act advisers to fresh government staff on pension funds.
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India will now become the second country in Asia, after Hong Kong, to have an exclusive regulator for the pension sector. The country may soon develop an enviable expertise in pension management technology it can export to other countries, says Mukul Asher, professor of public policy programme, National University of Singapore.
Pension reform in the country faces many a challenge with a state-of-the-art system grafted on to a salary disbursal machinery that has not been upgraded for decades. This will be the formidable challenge the yet-to-be established Pension Fund Regulatory Development Authority will have to face.
It now takes at least six months to obtain an employee service record. In addition, it is the officials in the PAOs who actually decide on tax planning issues for most employees of the government.
Senior officials working on developing the new pension model acknowledge that proper training for these staff has not yet been factored in to explain to the new employees, especially in the lower grades, the ramifications of privately managed pension funds.
Besides, a large percentage of the government employees habitually use their provident fund as surrogate for bank deposits. They may possibly baulk at the idea of non-permission to withdrawal from Tier-I.
CB Bhave, managing director of National Securities Depository Limited, whose company is one of the contenders for the role of central record keeping agency (CRA), says the new architecture will give employees an option of approaching, besides the PAOs, the fund managers or the CRA for any query on the management of the fund.
Significantly, the pension fund architecture developed by the finance ministry is, to a great extent, free from the flaws evident in many other countries.
For instance, Bhave points out, by recommending a single CRA, the authorities have ensured that the costs will be kept low for pension contributors. The CRA will add the contributions of each depositor against the name of the fund the latter has chosen to invest in. The sum will be netted out and a single cheque will be made out for the respective funds. The funds, therefore, will have no access to individual pensioners and so cannot indulge in mis-selling of schemes.
Along with these fire walls, India will have the insurance of a growing population and inclusion of the large base of unorganised sector to give the proposed scheme a very sound base, analysts point out.
The level of foreign direct investment in the new scheme also needs to be worked out. According to Asher, it will be useful to ensure that the FDI guidelines in the pensions sector are consistent with those in the life insurance sector, currently at 26 per cent.
