| Rangachary: Supporting role
New Delhi, Oct. 24: A high-level meeting between finance ministry top brass, IRDA chief N. Rangachary and K.C. Pant, head of the group of ministers on pensions, today decided to go ahead with a new system of nation-wide pension schemes covering the formal and informal sectors. These will be managed by private sector fund managers and supported by a complex system of cross-subsidisation.
Unlike models being pushed earlier by former social welfare minister Maneka Gandhi and labour minister Sharad Yadav, it will not get any financial aid from the government, but will be given tax relief in the next budget.
The meeting also favoured handing over the role of pension regulator to the IRDA with Pant preferring the insurance watchdog body over the Securities and Exchange Board of India (Sebi) and the concept of a new regulator.
The meeting also decided that a high entry-level capitalisation norm of Rs 100 crore will have to be set for pension funds, which will be allowed to manage the scheme.
Today’s decisions will be circulated in a note form by the finance ministry’s department of expenditure for a formal meeting of the group of ministers on pensions, expected to be convened early next month.
Today’s discussion evolved three alternate models — the first a mandatory system paying out a minimum subsistence pension to all, for which the state makes a substantial contribution. The second, also a mandatory one for the formal sector, which works on the ‘pay-as-you-go’ principle, and a third model which has been accepted as that of a non-mandatory pension scheme, covering formal and informal sectors. This will be privately managed with cross subsidisation.
Pant favoured the third model, asking Rangachary to work in a system whereby the basic pension scheme will have a monthly contribution of Rs 100, and a rider which will give a health and disability cover worth about Rs 50,000.
The new pension policy for the middle-class and the poor is being viewed politically as part of a bid by the BJP to try brush off the tag of being just pro-business. A tag that seems to have reinforced in public minds after this year’s budget increased income tax rates and slashed various tax relief for the middle-class even as it opened up most sectors to up to 100 per cent foreign investments and reduced taxes on multinationals.
Despite the decisions taken today, the group of ministers will still have to thrash out several key details like norms for starting the scheme and the limits on how the money will be deployed, including in the stock market.
Today’s meet, however, decided that tax sops have to be given to make the cover attractive not only for those who contribute but also for the companies which actually enter the fray. The scheme, it is estimated, will start paying back after a minimum contribution period of 20 years.
Finance ministry officials present at the meeting have been asked to work out the government give-aways by way of tax relief.