8216;FDI in pension will boost infrastructure8217;

The global funded pensions market both occupational and work related is estimated at 24.6 trillion dollars of which 16.2 trillion dollars are held by pension funds. Permitting FDI in pension funds will give access to global pension fund companies to the vast untapped Indian market,Assocham in its study titled 8216;Case for Allowing FDI in Pension Funds,said.

A 2.1 per cent allocation of total pension fund assets to India would increase its reserves to 342 billion dollars about the same in Brazil in 2010.

Going by the world trends,equity allocation of these could be as high as 160 billion dollars. A CAGR of 16.5 per cent as witnessed in Brazil will result in total pension assets of 734 billion dollars of which equity will be 345 billion dollars,8221; Assocham Secretary General D S Rawat,quoting the study,said.

Even if one-third of it goes into infrastructure development,it would mean an investment of over 100 billion dollars or one-tenth of total requirement in the 12th Plan period. At present,pension and insurance funds have a limited presence in the Indian markets due to regulatory restrictions.

In 2011-12,only 4.7 per cent of funding requirement or Rs 13,289 crore is likely to have come from pension and insurance funds compared to 10.5 per cent or Rs 29,851 crore from external commercial borrowings. The estimated debt requirement is to the tune of Rs 2.84 lakh crore in current fiscal and Rs 9.88 lakh crore in the 11th plan.

The government has introduced in Parliament the Pension Fund Regulatory and Development Authority PFRDA Bill which will pave the way for 26 per cent foreign investment in pension fund management companies.

The allocation of pension assets typically is 47 per cent in equity,33 per cent in bonds,one per cent cash and the remaining in other areas. In India,22.9 per cent could be in equity,16.1 per cent in bonds and the rest in others.

If pension funds are diverted to infrastructure projects,they bring long-term income streams,stability,predictable cash flows,low default rates,project diversifications and societal benefits. 8220;It is imperative that financial sector reforms continue to offer products and services for meeting financing and risk management needs of infrastructure projects,8221; said the ASSOCHAM study.

A vast majority of India8217;s population is not covered by any formal old-age income scheme and is dependent on their earnings or transfer from family members. The unorganised sector has no access to formal channels of old-age economic support. Only 12 per cent of the working population in India is covered by some form of retirement benefit.

The implications of demographic dynamics for pension planning become more evident when one takes into account the average life expectancy of 77 years which is likely to rise to 80 in the next three decades. The population above 60 years of age by 2030 will approach 200 million.

8220;Large-scale reforms are thus required to ease the pressure on treasury to provide for a social security net for growing number of senior citizens as well as growing workforce,8221; it said.