Pension

SECTORAL OVERVIEW OF PENSION SECTOR IN INDIA : REGULATORY FRAMEWORK AND LEGAL SERVICES BY BHATT & JOSHI ASSOCIATES

The pension sector in India has undergone significant reforms in recent years to provide social security to citizens in their old age. With a growing ageing population and increasing life expectancy, the need for pension schemes has become more critical than ever. In this article, we will provide a sectoral overview of the pension sector in India, including its regulatory framework, laws, and regulations governing the sector.

Bhatt & Joshi Associates being a leading law firm providing legal services to clients in various sectors, including the pension sector, also assists their clients with the various services in the pension sector, like compliance with PFRDA regulations, Structuring and drafting pension schemes, Advising clients on legal and regulatory compliance, representing clients before regulatory authorities and appellate tribunals and provide litigation support in Pension Sector.

Regulatory Framework

The pension sector in India is regulated largely regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and the Ministry of Finance. The pension sector in India is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is an autonomous body established under the PFRDA Act, 2013, with the aim of promoting and regulating the pension industry in India. Additionally, the Insurance Regulatory and Development Authority of India (IRDAI) regulates pension products offered by insurance companies, such as annuity plans and pension plans.

Overall, the regulation of the pension sector in India is aimed at ensuring the safety and security of pension funds, providing transparency to subscribers, and promoting the growth of the pension industry in the country.

Role of PFRDA

PFRDA is the primary regulatory body for the pension sector in India. It was established under the Pension Fund Regulatory and Development Authority Act, 2013. The primary responsibilities of PFRDA:

The PFRDA is responsible for the regulation of the National Pension System (NPS), which is a defined contribution pension scheme for employees in the public, private and unorganized sectors. The NPS was launched in 2004 and has been gradually extended to all citizens of India. It is a market-linked scheme, with investments made in equity, corporate bonds, government securities and other eligible instruments.
The PFRDA is also responsible for regulating other pension schemes, such as the Atal Pension Yojana (APY), which is a government-backed scheme targeted at unorganized sector workers, and the Employees' Provident Fund (EPF), which is a defined benefit scheme for employees in the organized sector.
The PFRDA sets out regulations and guidelines for pension fund managers, custodians, and other entities involved in the pension industry. It also monitors the performance of pension funds, ensures compliance with investment guidelines, and takes measures to protect the interests of pension subscribers.
The PFRDA works towards Regulating and developing pension schemes in India and also for Registering and regulating pension funds and other entities involved in the pension sector
The PFRDA works towards Promoting and increasing awareness of pension schemes among citizens
The PFRDA works towards Developing and regulating the National Pension System (NPS)

National Pension System (NPS)

NPS is a voluntary defined contribution pension scheme introduced by the Government of India. It is regulated by PFRDA and is available to all Indian citizens. The scheme offers two types of accounts – Tier I and Tier II.

TRANSITION FROM OLD PENSION SCHEME TO NEW PENSION SCHEME

The Old Pension Scheme was the pension system that was prevalent in India prior to the introduction of the New Pension Scheme (NPS) in 2004. Under the Old Pension Scheme, government employees were entitled to a defined benefit pension, which was calculated based on their length of service and the average salary earned during the last few years of service. The scheme was based on a pay-as-you-go model, where current employees’ contributions were used to pay the pensions of retired employees.
The Old Pension Scheme had several drawbacks, including a lack of portability, insufficient funds, and unsustainable financial burdens. The scheme was also criticized for being biased in favor of government employees, who were guaranteed a pension even in cases of poor performance, absenteeism, or indiscipline. The scheme was further criticized for being unfriendly to young employees who had just joined the workforce, as it provided very little retirement benefits to them.
To address these issues, the Indian government introduced the New Pension Scheme in 2004, which was later renamed the National Pension Scheme (NPS). The NPS is a defined contribution pension scheme that is open to all Indian citizens, including government employees, private sector employees, and the self-employed. Under the NPS, the retirement benefit is based on the contributions made by the employee, along with the investment returns generated on those contributions.
The introduction of the NPS was a significant step towards reforming India's pension sector. It has helped to address some of the concerns related to the Old Pension Scheme, such as lack of portability and insufficient funds. It has also enabled young employees to start investing in their retirement early in their careers, and it provides them with the flexibility to choose their investment options and fund managers.
However, the transition from the Old Pension Scheme to the NPS was not smooth, and it faced several challenges. One of the main challenges was resistance from government employees who were accustomed to the guaranteed pension benefit provided by the Old Pension Scheme. The government had to address these concerns by providing some concessions to the employees, such as a guarantee of minimum returns on investments made in the NPS.
Overall, the transition from the Old Pension Scheme to the New Pension Scheme was a necessary step towards reforming India's pension sector. The NPS has helped to make the pension system more sustainable, flexible, and inclusive. It has also paved the way for further reforms, such as the proposed introduction of a universal social security system in India.

Other Pension Schemes in India

Apart from NPS, various other pension schemes are available to citizens, including:

Laws and Regulations

The pension sector in India is governed by various laws and regulations, including:

Conclusion

The pension sector in India is rapidly evolving, and the government is taking various initiatives to promote and develop the sector. With the increasing need for social security in old age, the demand for pension schemes is only going to grow in the future. Bhatt & Joshi Associates can provide quality legal services to clients in this sector by providing expert advice on legal and regulatory compliance, representing clients before regulatory authorities, tribunals, the High Court and the Supreme Court of India and assisting with pension scheme structuring and drafting.

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