As part of its new social security structure, the Indian government has announced in the budget of 2003-2004 a slew of measures the highlights of which are outlined below:
Restructured pension scheme
With the aim of opening up the Rs3,000 billion pension market, the government has announced a new restructured pension scheme. The scheme establishes a Pension Fund Regulatory and Development Authority (PFRDA) headed by a chairman and four other members, which will oversee and supervise pension funds.
The scheme is to be open to all new government employees (except defence personnel) as well as employees in the private sector including the self-employed, on a voluntary basis. It will be based on defined contribution to be shared equally by government and employees. The government will not contribute for non-government employees.
Individual pension accounts will be maintained with pension funds run by pension fund managers, facilitating the transfer of benefits, in case of change in employment.
Pension Fund Managers have been restricted to six firms, of which one will be from the public sector, each offering three schemes (see table).
|Type||Government securities||Corporate FDs||Domestic equities||International equities|
|Safe||50% or more||30%||10%||-|
|Growth||25%||25%||40% - 50%||10%|
The government has also proposed amendment to income tax to provide tax benefits for investments made into various funds.
Varishta Pension Bima Yojana
Towards achieving the above goal and to kick start pension industry reforms, the government has on July 14 2003 launched the above scheme to provide lifetime pensions to individuals over 55 years of age on the payment of a one-time lump-sum amount, which will yield an annual return of 9%. The difference between the actual yield earned by LIC, on the funds invested under this scheme, and the assured return of 9%, will be reimbursed to LIC annually by the government.