A quick solution is provided by the active lobby both outside and, ironically, inside the government for demanding another Pension Regulatory Authority under the Insurance Regulatory and Development Authority (IRDA), which has submitted an authentic and pragmatic road map for provision of adequate economic security in old age. It has also stated that IRDA was competent to regulate the pension scheme without any legislative changes and was ready to issue comprehensive guidelines within two months of acceptance of the report by the government. This would save both time and cost overrun.
Dismayed with the denial of plum assignments as non-existent professionals managers, as recommended by the Dave Committee, to have a slice of the pension fund pie, the coterie constituting the group has been successful in enlisting support within a section of the government: for them, the paradise of post-retirement sinecure posts in the proposed pension authority should not be allowed to be lost. The issue has now been referred to the group of ministers comprising the ministers of finance, social empowerment, labour and personnel, under the chairmanship of the deputy chairman of the Planning Commission.
However, the OASIS (Old Age Social and Income Security) group cannot be faulted for lack of persistence even though the government has ignored its populist report. Who says India has no share of its Don Quixotes
Multiplicity of regulatory authority is favoured nowhere in the developed world. The United Kingdom model, modified to suit Indian conditions, is regulated by the LAUTRO (Life Assurance and Unit Trust Regulatory Organisation). In the US, pension funds are under the states regulated by 51 pension commissioners. The Japanese funds come directly under the ministry of finance.
Ironically, it took IRDA eight months of spade-work and extensive interaction with varied spectrum of interests to draw a blueprint. Surely, all this was not for abdicating its statutory responsibilities. IRDAs blueprint is unexceptionable, with an innovative proposal for tax exemption on annuity. This is in sharp contrast to the quixotic proposal in OASIS to tax even withdrawals from ones own savings.
The existing provision of total exemption up to Rs 10,000, with a rural bias, a year from the income is more acceptable to the Indian psyche and could be raised to Rs 20,000 under Section 80CCC of the Income-tax Act, 1961. One hopes the government will consider this ground reality while giving the green signal for regulating at the micro-level.
Significantly, the corporate sectors response to the issue has been tardy. Suddenly, pension funds have acquired a brand value and concern for the old is at par with OBCs, weaker sections of society, womens empowerment etc. Industrys response is predictably slow. With an astonishing display of naivete, the Federation of Indian Chambers of Commerce and Industry (Ficci) submitted its proposals to IRDA on October 27, 2001, hoping that IRDA would consider these just four days before the deadline for submission of the report. Not to be outdone, the Confederation of Indian Industry (CII) organised a seminar a day afteron November 1 and 2with almost the same participants. So much for cost-consciousness among captains of industry.
The core issue relates to the regulators no-nonsense approach and refusal to give a licence for adventurism with public funds. IRDA has prudently decided to keep the fund as balancewith a conservative asset-mix and strict regulatory norms, which are the need of the hour, given the existing financial schemes scenarios.
The regulator has aptly erred on the side of the prescriptive rather than permissiveobviously after having been reminded of the pension scandal in the UK in 1994, when despite the stringent norms laid down by the UK Securities Investment Board (SIB), six plan holders had to claim 2 billion due to a whirlpool of mis-selling, excessive costs and disappointing expectations. Recently, the Wall Street firm Merrill Lynch & Co had to pay an undisclosed sum reportedly estimated at $100 million for mismanagement of the Superannuation Fund by Merrill Lynch Mercury assets management which invested more than half the portfolio in general industrial companies. No wonder Barry Riley has observed in the Financial Times that the pension business is a natural breeding ground for swindlers and imposters
For, none can fault the regulations to be restrictive rather than permissive in a segment where probity in fiscal transactions could be an exception rather than the rule. Deterrent regulations are the need of the hour, even at the peril of being dubbed as throttling the fund managers initiative.