IUKFP: Pensions

This paper focuses on recommendations based on the UK experience in three areas that will support the development of the pension industry in India including increasing coverage and providing good advice, designing optimum products, and delivering a strong and cost-effective governance model for the pension industry in India

In spite of India’s high savings rate, India has a relatively under-developed pension system with only 4% of the population covered by a pension plan. The Indian government has therefore introduced several new pension programs including the National Pension Scheme (NPS), a defined contribution scheme, and the Atal Pension Yojana (APY), a defined benefit scheme targeted at the unorganized sector. While the initial response has been positive, it is widely believed that changes in the policy environment will support faster development of the pension infrastructure in India.

The UK has a mature pension infrastructure which has developed through evolving regulatory and market structure changes over the years. This paper provides a comparison of the structure of the pension industry in India and the UK. The paper then focuses on recommendations based on the UK experience in three areas that will support the development of the pension industry in India i) increasing coverage and providing good advice (including appropriate incentive structures for marketing and exploring auto-enrolment) ii) designing optimum products including addressing overlaps between existing and new pension schemes and products from insurance companies and mutual funds and iii) delivering a strong and cost-effective governance model for the pension industry.

We hope that as a next stage, both governments, regulators and the private sector will look to discuss these recommendations in detail with a view to identifying specific actions and assigning roles for implementation. The private sector is committed to playing its part in this process. The IUKFP Working Group that helped produce this paper will continue to support and provide input and will be available for specific discussions with practitioners and policymakers. We propose that a review of progress be undertaken by the end of June 2017 and reported to the co-Chairmen of the IUKFP.