Issues for the Indian Pensions regulator

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6 July 2010
Sreekrishna Sankar
One of the key areas in Indian Financial Sector reform is the Pension sector reform. The PFRDA (regulatory agency for pensions in India) faces the challenge of expanding the distribution network of the newly formed “New Pension System” to cover the entire unorganized sector in the country, handle the elderly population segment which has no pension, educate citizens to take appropriate investment decisions based on their risk and return profile, as well as contribute to improving the financial literacy levels. This blog post will take a peek at the two key population segments which are at the centre of what the regulator is looking at – the elderly population segment and the unorganized labor force. India has nearly eighty million elderly people, which is 1/8th of the global elderly population. This population is growing at an annual rate of 3.8% while the overall population is growing at more than 1.8%. Unfortunately, majority of this aged population is not covered under any formal old age income scheme making them vulnerable and dependent on the earnings and transfers of the children or other family members.

The Indian labor force is more than 500 million. A special feature of this labor force is the fact that it is heavily skewed towards the unorganized sector. The organized sector employs around 11-12% of the labor force. This leads to restriction in social security access to almost 90% of the labor population. Around 11% of the labor force, the organized sector is currently under pension cover leading to a crucial social security problem in the future.

There have been a lot of half-baked solutions like the rural old age pension schemes, profession specific plans etc, that have been tried out in the past with limited results. Now is the time for the regulator to come up with a top-down policy based solution which will handle these two issues in a comprehensive manner.

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Content Type
Blogs
Location
Asia-Pacific