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These statistics show how even in Indian scenario the importance of pension funds is going to grow tremendously in the coming years. At present, Govt. has to pay a huge amount (more than 8% of GDP in 1999-2000) towards the wage bill, which includes pension and allowances and is a big burden on the economy. This brings up the issue of Govt. taking positive initiatives towards promoting and developing Pension Fund schemes so as to avoid major economic crisis in the coming years.

At present, Pension Funds are at very nascent stage in India and not much has been done in this aspect till now. Govt. initiatives have not been very encouraging till now and very little has been done in the areas of reducing state control over pension schemes, encouraging private participation and implementing a proper framework for developing a Pension Funds market.

The various developments and reforms in Pension Fund areas are discussed in detail at a later part of this report.

How Pension Funds are Different from Employee Provident Fund, Public Provident Fund and Employees' Pension System?

The EPF, EPS and PPF are the schemes, which cover the pension market in India. However, returns provided by all of them are poor. In the last decade (91-00) provident schemes in India have earned a return of 2.5 per cent over inflation, which is very low compared to long-term real rate of return from capital market.

Currently, only employees of the government and the corporate sector are covered under the EPF. There is PPF for the self-employed. These are under government control and they suffer from poor asset management. In a State-controlled pension fund regime, the individual saver has no control over his savings, can have no participation and the incidences of political risks are high. Further to aggravate the situation, the State has been known to use the pooled-up retirement savings for developmental purposes and for financing budgetary deficit.

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* Contributed by -
Arpit Bhadani & Ashwani Gupta,
PGDBM 2006,
IMT, Ghaziabad.