There is no need to shut down EPS, says Gautam Bharadwaj one of the authors of the OASIS report on pension reforms which led to the setting up of the Pension Fund Regulatory and Development Authority.
How would the new PFRDA Act impact New Pension Scheme?
Earlier the PFRDA was in an unenviable position as it was regulating through contractors. Now that it is a law it can regulate through its own regulations. If someone misbehaves it can levy penalty etc while earlier you could only drag someone to court. So it creates a more secure environment..
The Act introduces two new things. First there will be minimum guarantee in some products. Some could be linked to Government Securities. The second change is that people will be allowed to withdraw.
Didn’t the OASIS report suggest guarantee?
We had suggested a tier- two account so that a part of the savings is put in that for emergency withdrawals. Withdrawals from pension funds contaminates the whole thing.
Whatever the changes in the Act, it will depend on the regulator on how these changes are implemented.
There is pressure on EPFO to shut down its pension scheme and merge it with NPS. Wasn’t the NPS meant for the informal sector rather than formal? Cant EPS and NPS co-exist?
If people in formal sector join NPS, it is good. But the main concern should be 300 million people in informal sector for whom nothing is available. EPFO can always be improved. And EPS and NPS should co-exist.
If I was sitting in Finance Ministry, the most difficult thing in world would be to get a young person to think of retirement and join a pension scheme voluntarily. The big plus about EPFO is it has legislative backing and it can force compliance on employers.
I don’t think we should wind up EPFO but strengthen it.
What is the main problem with EPFO?
It is not performing well one at the administrative level. Every member should have had an individual account by now. There is no reason why members still cant change their employers with ease. Second the EPFO cant calculate its liabilities as it does not have complete individual data.
How can it improve?
Labour Ministry should be given a time line to get every individual account right. Secondly it has to correct its fund management. It now invests in Gsecs and then standing on shoulders of trade unions asks for higher returns.
Central Board of Trustees is not the best of fund managers. The big plus of EPFO is it can force compliance of hundreds of workers and employers. But because you have poor returns you are forced to ask for 24% of salary as savings.
EPFO does have independent fund managers.
But who is setting the investment guidelines? If you already decide Gsecs why do you need an asset management company. If you hire a company, allow it to do something properly.
What about market fluctuations in NPS? What is the guarantee that your savings are not wiped out?
The maximum investment in equity is in the early years and it goes on decreasing. So if a person joins in 2004 and his funds take a five% hit in 2008 market crash, he can recover it by the time he retires 30 years later. If a crash happens close to retirement, very little funds are invested in equity at that stage.
