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.
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.
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.
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
a small task
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:
schemes providing modest benefits or social security
schemes sponsored by employers for the benefit of employees
or private mandatory pension programmes, and
voluntary contributions to meet retirement needs.
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.
with the number of retired persons increasing rapidly
as compared to the number of working employees, there
is a severe strain on this system. Developed countries
are reviewing the assumptions made in providing social
security benefits, and are proposing more and more private
initiatives to meet the old age requirements.
entails that the state would provide a basic minimum amount
of pension benefits, while the remaining amounts will
have to be accumulated by the people themselves during
their working life through various occupational or personal
India, the government as well as some employers in the
organised sector provide occupational schemes. As far
as personal pension schemes are concerned, Life Insurance
Corporation of India (LIC), Unit Trust of India (UTI)
and banks offer such benefits.
The central and state governments are facing serious financial
constraints in sustaining their pension schemes. Many
industries that have closed shop and some that are facing
closure are also unable to meet their pension obligations.
It is, therefore, time that more personal pension schemes
are introduced in the economy.
such schemes, during the time pension contributions are
made, a number of agencies may be involved. The employer,
be it government or private, may administer the fund.
Alternatively, outside agencies such as mutual funds,
banks or life insurance companies may administer the fund.
Finally, at the time of retirement, a life company becomes
is also to be remembered that such pension contributions
are long-term in nature and these funds are mostly deployed
in infrastructure building, which helps the economy grow.
is considered to be an underinsured country and studies
reveal that the LIC has so far been able to tap just 20
per cent of the vast insurance
potential of the country. With new players entering the
field and with innovative schemes and good asset management,
this potential can be fully tapped in the coming years.