Pension Fund
The Govt employees (Employees
of Some Private companies too) contribute some amount of their monthly
salary to a specific account called 'EPF'(Employee Provident Fund).
That means they are saving part of their income for benefit in the later
period. Govt also contribute some amount to it as a welfare measure.
Finally when the employee retires he gets lifetime pension out of the
amount he contributed during the service period. So if a person join
the service at the age of 25 years, he contributes money from his salary
to his pension fund for a total of 35 years(60-25).
The total of the amount
that each employee contributes at the national level is a big one.
Moreover Govt has recently
started a scheme called Swavalamban,a co-contributory (both the individusl and
Govt will contribute money) pension scheme for the workers in Unorganised
sector(they constitue more than 90% of the total work force in india).
One more thing is that
any person can take a pension scheme (pension policy) from Life
Insurance Corporation of India and other companies as of now. So that
a Private employee who has not PF account with his employer can also
avail the benefit of pension at the old age.
All these imply that the
Sum total of the money for the pension purposes at all india level will
be very high.
This huge amount will
be used by the Govt for investing in various projects,(Infrastructure
or other asset creating projects in the country). Out of the revenue
from those investments the Govt will pay the pension to the retired
employees along with the interest. This is the scenario till now..
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Pension fund is the fund
that includes the money payment made by the individuals for receiving
regular payments of a fixed amount as monthly/quarterly pension after
they attain a particular age(say 60 or 65)
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FDI in PF
Till now the Govt is the
sole user of the pension fund. Let us see what happens if 26% FDI is
allowed in PF.
Suppose there is
RS.100 million amount in the pension fund and If the govt allows FDI
of 26% then the 26% of 100 million(26 million) can be used by the Foreign
Investors. They (Foreign Investors) will use that amount for various
investment purposes as capital (This will generate employment opportunities
for the nation) and will repay the amount along with the interest and
their contributory part to the pension once the employee retire. That
means,instead of the Govt, the foreign investor will decide the amount
of pension to the Indian retired employees.
How
it helps to the Nation
As
pointed out earlier it will boost the economy with more employment opportunities.
This will attract many foreign investors to indian economy. This will
enable India to get more Foreign exchanges(Foreign currency).
This is not for just one or two years. But for a long period as the
pesion fund is for long term basis.
On
short term basis,India gains in terms of increase in share market index,
as has occured shortly after the Govt announced the plan before 2 days.
This will give overall confidence to the investors to invest more and
more in other sectors also. Only more and more investment can bring
growth to the overall economy. This is the basic idea of the Govt.
How
it helps the Pensioner's(People)
When
many Foreign companies invest in the PF, there will arise the element
of competition. This will enable people to access the benefit of higher
amount of pension by contributing small amount of Montly installment.
How
the Foreign investor benefit
They
will get lot of funds as Capital for investment purposes. That too they
need to repay only after a long period of time. During that 'interval'
period they will make lot of profits out of that money by investing
in diverse fields across the globe or India itself.
Why
the controversy against this policy
Some
analysts (among various political parties and others) fear that this
is a long term fund and the 'pensioners' contributory amount will be
in the hands of Foreign Investors. This is creating uncertainty
regarding their future pension. They are fearing that the Foreign Investor
will invest their pension fund in the Stock market that is highly uncertain.
And if they make loss then they may not pay back the pension amount.
Experience
teaches it as a good measure
India
has already allowed 26% FDI insurance sector(in 2000) which is also
a long term fund just like pension fund. People take insurance for for
long term basis, and nothing has happend for past 12 years. Many private
insurance companies are working very well in India. But still more than
half of the Indian population is not insured. So Govt wants to raise
the FDI cap from 26 to 49% to make it more competitive.
Solution
for the Controversy is also there
In
the case of FDI in PF, the govt has mentioned a clause ' Assured return
must be given by the foreign investor to the pensioners...'. As long
as this condition is there a foreign investor has to give the pension
amount to the people irrespective of his gain/loss from his investments(This
investment is made out of the money they got from the Pension fund).
If
that is the case then a vital question still cannot answer.
Why
the Govt did not consider FDI in PF in 1991 reforms and after that?
Comparison
of Risk of FDI in PF and Insurance
In
the case of Insurance, the companies definitely know that only a very
small percent of the policies will get claimed before the maturity period(That
is only a less number of insured people will die in accidents or prematurely).
And if no death happens the Insurance company will give back the Insurance
amount along with the Bonus(They will call it as Bonus instead of 'Interest')
at the maturity year. THIS IS ONLY A ONE TIME PAYMENT.
But
In the case of Pension, the Foreign investor has to repay the money
on equal montly installments as long as the pensioner lives.. As the
Foreign investor is also a profit making person ther is high element
of Risk of FDI in PF compared to that of insurance.
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More can be said only after seeing the Terms and conditions mentioned by the Govt to the Foreign investors in the Official
document.
The terms and conditions ,as I expect,might have:
Foreign investors should invest the pension fund amount only in india
'Assured return' must be equal of higher than the present rate of
interest
Pension must be given as long the person lives, and not till 8o years
or and the like..
Only high profile investors should be allowed
Thank you for the detailed note. The
terms and conditions seems very valid and vivid. In this scenario the
new plan participatory pension plan will work very smoothly.
Additionally, I want to know, instead of Foreign investors why this
amount can be utilized/fetched by the Indian investors.
The
pension fund is already been handled by private players like: ICICI
Prudential Pension Funds Management Co. Limited, Kotak Mahindra Pension
Fund Limited, Reliance Capital Pension Fund Limited ,etc. They are
termed as Pension Fund managers by the Govt.
When
a foreign investor is allowed in the Pension sector India can earn
Foreign Exchanges. When Foreign Exchange flows into the country, it will
make the value of Indian Rupee in a stable position. That means Indian
Rupee can appreciate its value. It works like this: Suppose a Foreign
investor gets 1 Billion of Indian Rupee from the PF then he should bring
Foreign currency of Equal worth to India.
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