The frenetic activity to complete the legislative process to create the Pension Regulator, before the ordinance runs out on Thursday, is only comparable to the activity witnessed to take up the Patents Bill for discussion. The Left parties are against the Pension Bill-they say that the ordinance was brought in without consulting them, and most importantly that as these funds would be deployed in the secondary markets, the contributors should have a say in what happens to the investments. In short, they would like an EPF like structure, with employee participation. The trade unions of the Left have also opposed this on similar grounds.Today pensions cover only a miniscule proportion of the working population: those in civil services and in the organized sector. As fiscal deficits of Governments grow, even these pension schemes are at risk. The alternatives available are in the form of fairly indifferent insurance premium schemes, and are accessed by only a very few. In a demographically young country, with incomes and savings going up, there is vital need for an alternative that is accessible to all, reliable, and transparent. The new pension scheme tries to do this. Government makes a matching contribution of 10% of the individual’s salary to a pension account, which, together with the individual’s contribution, adds up o 20% of his salary. These funds are then to be invested by a pension manager, at the choice of the individual, into government securities, or a mix of securities and funds. The regulator appointed by the government would monitor and supervise the operations of the fund managers, of whom at least one would be in the public sector. The contributor could switch his investment between portfolios annually. The strategy thus provides for transparency, safety (both through the public sector fund manager and through investment in Government securities), as well as flexibility of movement between options. It is an improvement on the EPF, which is locked into Government securities, both in terms of possible returns as well as in terms of flexibility. Further, since the contributions from Government are also up front on a monthly basis, there is no risk caused by any fiscal mismanagement by the government.The programme has been extended to all new government staff with effect from 1 Jan 2004, and these funds are currently sitting in the government treasury, a sub optimal application of these resources. Nearly two hundred thousand people are already part of the new system. Eight state governments have announced their intention to join the new scheme and several others have evinced interest. While freeing government from the fiscal stress of pensions in the future, it would open up alternative safe options for the employees. Most importantly, such a scheme could cover not only those in government, but to all, especially in small firms, in professions, in the services sector, and in the knowledge sector, where these alternatives are urgently needed. The structure and conceptualisation of the scheme have attracted positive attention internationally.Why then, the hesitation, the need to drag every reform activity, struggling and kicking, into the parliamentary approval process? There is little economic justification in the arguments of the Left, for the public sector fund manager would well emerge as the preferred option, with investments going into safe securities. There is also the opportunity of providing a facility for a much larger clientele than just to the organised sector and government servants. It would appear to be an opportunity for enlargement of the clientele base rather than any curtailment. If the returns to the EPF are a consideration, then those candidates can well opt to stay out and watch until they are convinced that the new scheme is a better option. Thus the objections, at best , are political-that having had to go along with several reformist steps taken by the government, there is need to make a point, and best to make it in this area, for better mileage. That would indeed be sad, for, quite apart from this being the single reform that would benefit the largest numbers; it is also necessary to save several state governments from the fiscal abyss that is ahead of them.Finally, surely someone recognizes that this is a finance bill introduced in the budget, and the inability of a government to push through a finance bill could raise constitutional questions on its legitimacy.The author is former revenue secretary
