Opening new vistas

Mumbai: Since the liberation of the insurance market in India, the government has been considering opening up the pensions market to private players. As a first step, the government has asked the Insurance Regulatory and Development Authority (IRDA) to submit recommendations relating to opening up the pensions market.

Basically, the life insurance business and the pensions business are linked to each other. In the case of life insurance, moneys are available to the family of the deceased on the death of a productive person while in the case of pension, money is available to the person after retirement, when he is no longer productive.

In India, the mortality rates have been declining over the last three decades and it is natural that pension funds are being more sought after of late. The life expectation at birth in the country has risen from 45.6 years in 1971 to more than 62 years today. In fact, the life expectation of the average pensioner is substantially more than this figure and is increasing quite rapidly.

The number of pensioners is also rising quickly. The number of people above 60 years in 2001 is estimated at 71 million, forming about 7 per cent of the total population. By 2016, this number is expected to rise to 113 million, forming nearly 9 per cent of the population. Pensions, therefore, are the most suitable way of sustaining these elderly persons.

Not a small task The problem of providing for this section of the population is enormous. To overcome the problem, the World Bank has suggested a structure that breaks up the pension provisions into three types:

  1. Publicly-funded schemes providing modest benefits or social security schemes,
  2. Occupational schemes sponsored by employers for the benefit of employees or private mandatory pension programmes, and
  3. Additional voluntary contributions to meet retirement needs.

In developed countries, social security schemes are operated by the government on a pay-as-you-go basis. Even though employers and employees may have to contribute to these schemes, basically current employees are contributing to pay the pensioners.