Sic.

This weekend, Prime Minister Modi announced India would launch the biggest funded DB pension in the world from April 2025. This scheme will initially include 2.3m central Government employees (civil servants) but will be opened to local government employees on a state by state basis.

The decision looks like angering India’s private sector employers. The Times of India’s article announcing the new Unified Pension Scheme was followed by hundreds of comments from irate private sector workers and bosses, accusing the Indian Government of feathering its own nest.

At present there are two public sector pensions, the “old pension” which provides a final salary benefit on a non-contributory bases and the “new pension” which is DC and provides pots and pensions based on market rates. The Unified Pension will be shared cost with employees contributing 10% and will upgrade the new pension benefits to old pension benefits. The new pension has been running since 2004 so this is quite a promise. Currently the NPS scheme costs the taxpayer 14% of salary, this will increase to 18.5% while according to the government, the expenditure for arrears will  be £8bn  with ongoing costs increasing by £6.25bn a year.

Reuters report on the cashflows.

The financial implication of the UPS on the government exchequer is expected to be about 62.5 billion rupees ($745 million) in the fiscal year 2024-25, with the annual cost varying each year depending on the number of retiring employees, the minister said.

Benefits look generous and offer up to

• 50% of the average basic pay drawn over the last 12 months based on 25 yrs of service (final salary)
• Assured Minimum Pension @ 10,000 Rupees per month on with 10 years service (A rupee is approximately 1p, so the floor will be £100 pm)
• Inflation linked to the All India Consumer Price Index for Industrial Workers (AICPI – W)
• Survivor benefits

Which all comes as a bit of a shock!

India is the world’s largest democracy and its fastest growing economy. Instead of de-risking its pension liabilities, it has – after consulting with the World Bank and the Reserve Bank of India – taken on considerably extra risk.

I see no mention of a pension fund and assume this will run, as the majority of public pensions do, on a pay as you go basis with the liability sitting on India and its State balance sheets.

Reuters report that the Government has been forced into this measure following the return of certain states to the Old (fully funded ) Pension.

Recently, states including Rajasthan, Jharkhand, Chhattisgarh, Himachal Pradesh and Punjab have opted to move back to the old pension system.

It seems that the Indian public servants have forced the issue. But bravo to Modi for  making such a confident statement about its future. I will no doubt be given stern admonishment from the majority of my readers but I will remind all that a Government can be judged by how it treats its most vulnerable.

While I do not expect mass adoption of DB in the private sector, I would be disappointed if the private sector did not level up.

The inexorable trend towards DC appears to have been reversed in the Indian public sector and while the move was affordable because the New DC scheme was a relatively small downgrade on the Old DB scheme and the new Unified Scheme is contributory at 10%, this is still “quite a thing”.

InDIAs

My generous friend Arun Muralidhar has offered India the InDIA – which is infact a state backed bond which could have been useful for the New DC scheme (aka the SeLFIE)

This still looks a winner for Indian DC savers looking to convert pots to pensions. The paper points out that current financial services available aren’t fit for purpose and the InDIA could offer a means for Government to hedge its exposure to final salary promises with debt issued to retirees in the private sector.

India’s National Pension Service (not to be confused with the New Pension)  offers a regulated pension system in which employers and individuals can participate. It is a DC facility.

Arun asks whether I would want to move to India for a better pension. The answer is no, I would move to India because of India and do so with my British pension. However, as half of AgeWage’s staff are based in India, I am delighted with this development and hope that we will be able to offer them a wage in later age, perhaps with InDIAs.