NATIONAL PENSION SYSTEM: A Comparative Analysis

IRJMSH

Vol 6 Issue 6 [Year 2015]

ISSN 2277 – 9809 (0nline)

2348–9359 (Print)

NATIONAL PENSION SYSTEM: A Comparative Analysis Haladhara Sahu Junior Research Fellow in Finance Department of Commerce Faculty of Commerce and Business (DU)

CA Deepak kataria Junior Research Fellow Department of Commerce Faculty of Commerce and Business (DU)

Jayant Hooda Research Scholar Department of Management Central University of Haryana Abstract The traditional family support system has been collapsing over time because of structural changes in the living style, kinship, cultural value, urbanization, globalization, modernization etc. Whichis knocking door for an alternative system of old age financial security.Motivation for developing such an idea of comparison of old age income security in the age of retirement in relation to the cross border is only based on the assumption that whether our NPS (National PensionSystem) is capable, adequate, flexible, efficient and sustainable enough in providing the benefits to the olds or there is need of a mere or huge scope of improvement in the system. Introduction Income security in the old age should be one of the most primary functions of a welfare state. In most of the developed countries of the world like Sweden, Norway, Finland, UK,USA etc. wheregovernment is more closely involved in providing financial securities to the old age people in form of pension benefit, social security, old age benefit, Medicare, healthcare benefit etc.at the same pace the private sector also join hands too, even in some places the participation from private sector is more. Countries like USA, Sweden, Chile, Norway, UK etc. where the government also undertake the responsibility of guaranteed minimum pension assurance to the olds. Where as in India these concepts of social security, minimum pension guarantee, old age pension, healthcare, Medicare etc. are relatively uncommon to both public and private sector. International Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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In the further process of discussion we will give a glance on the Indian pension system. We will also make an attempt to compare our system with the pension system of countries like USA, Sweden and Norway.Rationale behind thecomparisonis to check the adequacy, effectiveness, sustainability, regulation and scope of improvement in our system. These countries are being selected for the purpose of comparison only because of their relatively well structure pension system and service delivery mechanism. Here we have chosen the Scandinavian model of pension which is assumed to be one the sound pension system in the world whose structure, service delivery, institutional architecture, benefits, contribution, regulation etc. are relatively better than the other part of the world. Similarly USA has also been chosen for its very well structured social security provision and pension benefits to the nationals. Areas of comparison 1 STRUCTURE-Benefit design, Public or Private, infrastructure 2 ADEQUACY-Benefits , coverage, savings, tax support(Mercer global pension index 2014) 3 SUSTAINABILITY- Coverage, benefit payments, contribution, demography, regulation (Mercer global pension index 2014) 4 INTEGRITY-governance, coordination, communication, protection, education (Mercer global pension index 2014) 5 FLEXIBILITY-legislative controllability, transfer of service, service options, scheme options. 6 EFFICIENCY-fund performance, service delivery, cost of service accessibility, institutional architecture, infrastructure support. COMPARISON OF PENSION SYSTEMS Country‟s regulatory effectiveness, institutional infrastructure, service delivery and performance of the system bring confidenceof participant in the system. Financial security in the age of retirement is problem for individual, society and government.There is no single system which could universally be applied around the world. The system will bound to differ from country to country because of its diversity in social, economic, political, cultural, spiritual, and religious value. However there are certain features in some system which could be incorporated in some other system so that it could improve the adequacy, efficiency, regulation, sustainability and integrity Moreover the faith and trust in the system. Here we have made an endeavorto compare our system with the system of Norway, Sweden and USA to find some good attributes in their system which could be considered for experimentation in our system. The following are the areas of comparison. 1. STRUCTURE Country‟s pension structure which includes the basic pension design, benefits, tax supports, contributions etc. In this segment of our comparison will focus on the operating mechanism of pension systems of the selected countries. NATIONAL PENSION SYSTEM OF INDIA: A Brief Introduction

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Public and Private pension Prior to the existence of PFRDA or October 2003 country‟s pension structure was based on the traditional system of pay as you go scheme of defined benefit where the pension benefit was provided to the retired citizen on the basis of funds accumulated from the currently serving employees. There was no investment of accumulated pension funds as the accumulated funds were disbursed for the purpose of making payment to the retiree. Earlier the benefit of retiree was purely defined because there was no investment of funds which carry the risk of fluctuation in the funds value. But after October 2003 there has been a tremendous change in the pension structure in the country. Pension Fund Regulatory and Development Authority (PFRDA) was established by the Government of India through a resolution dated 10th October, 2003 .This institution got the statutory status after the passage of Pension Fund Regulatory and Development Authority Act, 2013 which received the President of India assent on 18th September 2013. As per the provision of this Act the PFRDA has been mandated to promote old age income security by establishing, developing and regulating pension funds, to protect the interest of the subscribers to the schemes of pensions funds and for matters connected therewith or incidental thereto. National Pension System is a defined contributory pensions system introduced by Government of India to replace the existing pay as you go scheme of defined benefit making it mandatory for all Central Government employees with effect from 01st Jan, 2004 and Government authorized PFRDA vide Ministry of Finance, Department of Financial Services letter No. 11(11)/2008-PR dated 29th July 2008 to extend NPS on a voluntary basis to all citizens of India including workers of the unorganized sector. NPS is now available to all citizens of India with effect from May 1, 2009, other than government employees already covered under NPS. In the initial phases of development the new pension system was made applicable to the central government employees only. In the year 2009 in the further process of reforms the government extended it affords to include the unorganized sector working group. Which consists of workers from well educated, well off self-employed professionals, proprietor to farmers, street vendors , rickshaw-pullers , construction workers, casual/contract labors and So on. The institutional infrastructure to implement and administer the system, government has established various intermediaries such as Central Recordkeeping Agency (CRA), Pension Fund Managers (PFMs) for professional management and investment of subscriber funds, Points of Presence (POP‟s) for distribution of the product.(PFRDA website 2014) For the purpose of investment of funds there is provision of two types of account a .TIER i ACCOUNT-this is a non-withdrawal (PRAN) Permanent Retirement Account Number . Where the employee need to deposit minimum 10% of basic salary and DA and the employer would also contribute the equal amount in case of government employee. He or she can also contribute more amounts but the government participation is up to 10% only. Employees other than government employees are not entitled to any contribution from government. This amount will be invested in the market in the combination of three classes of assets such as equity, government securities, and securitiesother than government securities according to the choice of the investor which will be managed by the fund manager of his or her choice selected by the government. Amount can only be withdrawn after 60 years or after International Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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retirement and that also restricted to the 60% of the accumulated funds in the account and for rest 40% he or she has to purchase annuities form the list of annuities provider who will provide stream of income to him in rest of life. „‟Recently pension fund regulator PFRDA has proposed to allow the subscriber of National Pension System (NPS) to withdraw up to 25% of accumulated funds for meeting medical treatment expenses, higher education of children, marriage of daughter and house purchases . The partial withdrawal is however allowed after 10 years of contribution by the subscriber. On frequency of the withdrawals the guideline says the subscriber may be allowed to withdraw at the most three times and there should be a gap of at least 5 years .‟‟(19th January 2014 Economics Time) b. TIER ii ACCOUNT: This is a voluntary savings facility. You will be free to withdraw your savings from this account whenever you wish. This is a not a retirement account and you can‟t claim any tax benefits against contributions to this account.(PFRDA website 2014) To encourage people from the unorganized sector to voluntarily save for their retirement and to lower the cost of operations of the New Pension System (NPS) for such subscribers, a cocontributory scheme called “Swavalamban”, was launched on 1 April 2010 by the Central Government. The Scheme is to be administered by PFRDA. The Central Government contribute INR 1 000 per annum to members. Membership in the Swavalamban scheme is possible if the member is not a part of any statutory pension scheme of the Government and if he or she contributes between INR 1 000 and INR 12 000 per annum. The Swavalamban Scheme is open until the financial year 2016-17. PFRDA expects that the scheme will benefit about 7 million NPS subscribers of the unorganized sector during this period.(OECD website 2014)(PFRDA website 2014) Tax benefit to employee: Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer‟s contribution as under: (a) Employee‟s own contribution - Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1 lac under Sec 80 CCE. (b) Employer‟s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) over and above the limit of Rs. 1 lac provided under Sec 80 CCE.(PFRDA website 2014) PENSION SYSTEM IN SWEEDEN Sweden has a politically and financially stable pension system based on an agreement across political party lines. The pension system is completely separate from the central government budget and automatically follows economic and demographic developments. Pensions are based on lifetime earnings. The Swedish pension system is comprised of several parts: the incomebased pension, the premium pension and the guarantee pension. In addition, most people receive an occupational pension and some also have private pension plans. The pension system is financially autonomousThe pension system follows economic growth and tolerates demographic changes. The system is stable in the long term - both financially and politically. Pensions are based on lifetime earnings. The retirement age is flexible. Both incomeInternational Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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based and premium pensions can be drawn from the age of 61. They can be drawn wholly or partially. One can continue to work while drawing a pension.The pension system is financially autonomous and completely separate from the central government budget. The pension system is stable because pension size is determined by average life expectancy and because income-based pension paid out and pension credits follow wage developments. Strong income growth means pensions will be higher, while poor income growth will correspondingly result in poor pension growth. As a complement to the income-related old-age pension there is also provision for basic protection in the form of a guarantee pension, which can be drawn from the age of 65. Income-based pension The income-based pension is the main part of the national pension system and is based on total earnings throughout life. The longer one works the higher pension one receives. This principle means that the value of all pension contributions - made during the course of working life - is equivalent to what we receive as pensioners in the form of our pension.Pensionable incomes are wages as well as payments from social security and unemployment insurance systems. 18.5 per cent of an individual's pensionable income is set aside for their pension (16 per cent goes towards their income-based pension and 2,5 per cent towards their premium pension). Premium pension The premium pension is also based on lifetime earnings. The premium pension is funded, and everyone is free to choose which funds it is to be placed in.The premium pension is the funded part of the earnings-related old-age pension. The premium pension system is administered by the state Premium Pension Authority (PPM).Of the pensionable income 2.5% is paid to the funded pension scheme, which is compulsory. The money is deposited in individual investment accounts with individual choice. Employees can choose to have their premiums invested in up to five funds out of more than 700 mutual funds offered by independent fund managers. In addition, the government has set up a special investment fund for individuals who do not want to make their own investment decisions; their contributions are automatically invested with the Premium Savings Fund, which is managed by the Seventh National Swedish Pension Fund (AP7). The individual is free to change the chosen fund at any time and free of charge. The premium pension can be drawn at the age of 61 at the earliest, but it is also possible to postpone withdrawals from the pension account, which requires that the assets are invested in security funds Guarantee pension Anyone who has not earned an adequate pension is guaranteed a top-up guarantee pension. This compensation is financed by the central government budget. The guarantee pension is indexlinked. It increases in line with inflation and is linked to the price base amount calculated by Statistics Sweden. Housing supplement for pensioners Housing supplement for pensioners is an important part of basic social protection provided to pensioners with low pensions. Whether you are entitled to International Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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housing supplement for pensioners or not depends on your income, assets and housing costs.You may also apply for housing supplement if you live in rental accommodation, tenant-owned housing, your own house or an old people's home. Housing supplement is applied for from the Swedish Pensions Agency. One must draw a whole pension and be over 65 to receive a housing supplement. Survivor's pension The survivor's pension includes income-related benefits in the form of a child pension, an adjustment pension and (during a transitional period) a widow's pension, plus (under transitional regulations) a special survivor's pension. In addition, basic protection may be] source OECD website. (pension funds online 2014) Likewise we could see the structure of Norway and USA. NORWAY PENSION SYSTEM; Pension System Design The Norwegian system consists of a public pension system, a mandatory occupational pension system and personal pension saving arrangements. The Norwegian pension market is a small market dominated by insurance products. About 75% of private pensions in the Norwegian pension market are funded by insurance contracts and the top five insurance companies control about 94% of the market. Public Pensions The state pension scheme provides a satisfactory pension level based on a flat-rate basic pension and an earnings-related supplement that covers all employed and self-employed persons. People employed in Norway or who have been living in the country for more than one year are required to join the system. Employee contributions amount to 7.8% of income whereas the employer pays 14.1%. In contrast to most European countries a maximum earnings ceiling does not apply, consequently total income is charged. In 1966 Norway established the National Insurance Scheme Fund (NIS Fund), which was intended to be the funding vehicle for reserves stemming from a surplus in the social security system. To further strengthen Norway's financial position to meet future pension liabilities, the Petroleum Fund was established in 1990. Both funds merged in 2006 to make up the Government Pension Fund that consists of two parts, the Government Pension Funds - Global and the Government Pension Funds - Norway. The latter reflects the old NIS Fund. Occupational PensionPension provision is compulsory in Norway under specific conditions that are related to the number of employees and their working hours. The new legislation led to a

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strong increase in sales of mandatory pension products, thus encouraging new providers to enter the market. Traditionally, defined benefit (DB) schemes were the prevailing form of occupational pension provision. Large employers predominantly offer them. However, defined contribution (DC) schemes are becoming increasingly popular. A number of banks and investment funds have entered the market as potential providers for such schemes. But insurance schemes are still the dominating financing vehicle. Occupational pension schemes can be funded through a group insurance arrangement or a pension fund. Insurance is the dominating financing vehicle for occupational pension plans although the number of pension funds is growing rapidly. Pension funds Thereare no special regulations regarding the appointment of an investment manager for pension funds. The market is open for external financial service providers located and licensed in other EEA countries. According to the 2001 pension legislation, DB schemes have to be fully funded at all times. Employer contributions towards an approved DB pension plan are fully tax deductible with no limit on the level of contribution. However, total benefits from both first and second pillar pensions are limited to 100% of salary up to six times the basic amount plus 70% of salary between six times and 12 times the basic amount. In order to receive an approved status, a defined benefit plan must not provide pensions on a pensionable salary in excess of 12 times the basic amount. For DC plans the contribution rate is limited to 5% of salary between two and six times the basic amount plus 8% of salary between six and 12 times the basic amount. These contributions are fully tax deduction. (pension funds online 2014) PENSION SYSTEM IN USA Pension System Design Public Pensions The American state pension system (official name: OASDI – Old-Age, Survivors, and Disability Insurance program) operates on a pay-as-you-go basis and is financed through social security taxes paid by employers and employees (accounting for 84%), tax revenues paid by upperincome social security beneficiaries (2%) and interest earned on accumulated trust funds reserves (14%). The social security tax is shared equally between employer and employee. Contributions are tax-exempt, although the benefits are taxed if the total income in retirement exceeds a specified amount. The statutory retirement age depends on the retiree's year of birth and lies between 65 and 67. Occupational Pensions In private industry 60% of the workforce has access to retirement plans. DC schemes dominate the occupational pension landscape and cover 43% of the workforce. By International Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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contrast, only 20% of the private sector workforce participates in a DB scheme. Altogether, 51% of the total workforce is integrated into any kind of pension plan; the entire sum is less than the individual items because some employees participate in both types of plans. The most widespread type of DC plan is the 401(k) plan. 401(k) plans enable employees and employers to make tax-deferred contributions from their salaries to the plan. Most 401(k) plans provide retiring employees with multiple distribution options for receiving plan account balances. Lump-sum payments, installment payments for a fixed number of months and annuities are available distribution methods. It is also possible to defer any payment until a certain age. New regulations facilitate and encourage the automatic enrolment of employees into existing employer DC plans if the employees fails to make any decision. New regulations now define mechanisms that a Qualified Default Investment Alternative (QDIA) must apply. The products asset mix must take certain characteristics, such as age and retirement age of an individual or a group, into account. Life-cycle funds, balanced funds and professionally managed accounts are examples that match these requirements. Employees that do not make any investment decision are consequently enrolled into this default option. In addition to the popular 401(k) plan, the following scheme types could be set up to provide occupational pension coverage: - 403(b) plans: employer-sponsored retirement plans, which enable employees of Universities, public schools, and non-profit organizations to make tax-deferred contributions from their salaries to the plan. - 457 plans: employer-sponsored retirement plans, which enable employees of State and local governments to make tax-deferred contributions from their salaries to the plan. - Thrift Savings Plans: employer-sponsored retirement plans that enable employees of: The Federal Government to make tax-deferred contributions from their salaries to the plan. - Employer-sponsored IRAs - A SIMPLE IRA plan is an IRA-based plan that gives small employers (those with less than 100 employees) a simplified method to contribute toward their employees' pension - SEP IRAs: Simplified Employee Pension plans do not have the same start-up and operation costs as conventional work-based retirement plans and are designed mainly for small businesses as well. Trustees of SEP-IRAs are generally banks, insurance companies, mutual funds and other approved financial institutions. Tax treatment of contributions and benefits Contributions to qualified pension plans can be made on a pre-tax basis subject to certain limits. Dividends and capital gains remaining in the accounts accrue tax-deferred. Only when the money is withdrawn it is fully taxed as income.

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Employees are allowed to transfer part or all of their contributions to a 401(k) plan as designated Roth contributions. The amount treated as Roth contributions is paid on an after-tax basis and, as a result, does not qualify for tax relief as the payments are included in gross income. Contrary to traditional 401(k) plans, investment returns and benefits remain tax-free. Another characteristic of traditional 401(k) plans that does not apply to Roth 401(k) plans is the forced withdrawal at a certain age. The retiree is completely free to choose the point of time when to withdraw the accumulated assets and particularly if, in fact, it will be withdrawn. (pension fund onlines 2014)

Experiences from overseas indicate that the existing pension system would be incapable of providing pension security to the olds in future because of unfavorable demographic trends, government financial constrain, and low coverage of the system. Hence introduction of NPS could be assumed as nice steps forward from the government and PFRDA. Here one thing most be noted that the pension structure of India might be looking sound but the structure is not enough in providing the service to the society, for that we need to have good infrastructure, good communication, understanding of the system, dissemination of information about the system, financial literacy, people participation, etc. Where India is lacking in huge margin to its counterpart like USA, Sweden and Norway where people are more aware of their system and government also putting more affords to make people aware about the system Majority of people in India both in rural and urban area don‟t even know the pension system which the government is continuing. What are the benefits to them they don‟t even know. There is huge information barrier between the service provider and the public. Infrastructural International Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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inadequacy and lack of financial education are the major reason for this .Hence it could be suggested that government needs to put extra efforts to make people aware so that participation in the NPS could go up. In USA there is a website in the name of benefit finder where you just need to give your details it will give you all list of governmental benefits available to you. A part from this all your information remain confidential even you need not to give your name. Till today all these countries public pension system is based on the basic framework of traditional pay as you go scheme. But these countries could visualize that these pension system is not going to work in the future because of increasing changes in the demography of these countries. The present generation funding to the retiring people is falling short for making pension payment. Hence all these countries are moving from PAYG to defined contribution. ADEQUACY: In this sub head our discussion we will focus on the pension system adequacy which will emphasize on that whether coverage of the system as well as the benefit provided is not satisfactory, satisfactory, good or better. In this segment of discussion Indian pension system is lacking in huge margin than other systems. In USA, Sweden and Norway almost all retired or olds are covered in the system. Apart from this the citizen enjoys other social security benefit like healthcare benefit, housing allowance, survivor benefits, mediocre benefits etc. where as in India near about 13 % people working in government and organized sector covers through both pension system and employee provident fund. Here we could see the inadequacy of the Indian pension system. In addition to this we could also see that, though the new pension system has opened the door for unorganized sectors since 2009 the participation rate is still very low. This system is not covering that portion of population who needs the benefit more than who are covered. There is lack of social and financial security to vast majority low income people who are engaged in informal or unorganized sectors. Unlike the system of USA, Norway, and Sweden we don‟t have any provision of minimum guaranteed pension benefit in the pension system. All these countries have the provision of minimum financial benefit assurance to the olds and the amount of benefit also quite decent. In USA Pension Benefit Guarantee Corporation(PBGC) undertake the responsibility of minimum pension guarantee if the accumulated amount is falling short to the minimum pension benefit. In Sweden there is also provision of guaranteed pension which could be assessed from 65 years. In India we have also a scheme called Indira Gandhi Old Age Pension Scheme (IGNOAPS) is an old age national pension scheme launched by Ministry of Rural Development which ensure 200 rupees to the age group of 60 to 79 and 500 rupees to people above 80 respectively belonging to BPL category. Here somebody can feel the worth 200 rupees per month in such high inflationary days of the economy where one kg onion cost more than 80 rupee. There is no question of minimumbenefit in it in the name of minimum. Now a days labor union are asking for 3000 rupees minimum pension benefit and government is proposing a minimum pension benefit of 1000 per months which is not yet legislated.

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There is not even a single provision of minimum pension or financial benefit to the agricultural farmers who are olds now in the NPS system. When they were young they were the major contributor to the national GDP.Who provided the food security to the country he/she has no security after he/she gets retire from agriculture. It is assumed that India has a very rich culture of social living where family plays a vital role but it has been observed that the family support system has been continuously diminishingover the time in India too. Therefore we need to develop a system which will adequately serve the society at large. Policy must be designed in a way so that almost all people from both organized and unorganized sector would be entitled to the pension benefit with the given government financial constrain. Policy like pension for agricultural farmers where the farmers need to contribute some money for his retirement benefit and government also give partial financial assistance so that a minimum pension benefit can be ensured. By doing this we could capture the large segment of working population but it is almost understood that making them agree to make contribution for their retirement would really be a tedious job on the part of the government. Because these are the people who have the numbers of burden with that little income struggling for basic needs of life. A very wide research is needed to develop such kind of module of agricultural pension scheme so that prime objective of wide coverage could be achieved. However it should be the responsibility of the welfare state to ensure social and financial security to all. So at last it could be stated that PFRDA and government need to expedite it affords in reaching to the people who need the benefits at large through education, skill, communication, awareness and employment. SUSTAINABILITY The sustainability sub-category has a focus on the future and measures various indicators which will influence the likelihood that the current system will be able to be maintained in the future. (Mercer global pension index 2014)Sustainability of system is one of the most crucial characteristics in a pension system. We will call the system sustainable if it is responsive and adjustable with the change in time. To attain these attributes the system should hold some qualitylike sound benefit design, wide coverage, better regulation,sound contribution, strong infrastructure support, sound service delivery and efficient management. So that the system could easily handle the change in demographic trends. Indian system is relatively new in the contributory funded pension structure. Lack of infrastructure and financial awareness is also a major problem in the process of expansion of Indian pension system. DEMOGRAPHY AND MACRO ECONOMICS

COUNTRIES GDP PER CAPITA (USD)

USA 43800

SWEEDEN

NORWAY

INDIA

49662

82536

1061

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POULATION (000s)

299398.5

9148

4709

1211412

LABOR FORCE (000s)

148893

4838

2507

484343

EMPLOYMENT RATE

92.5

93.9

97.5

21.3

POPULATION OVER 65YEARS IN %

12.4

17.4

14.6

5.3

DEPENDENCY RATIO

24.4

33

27.5

53

Note: Data from 2007 or latest available year. Source: OECD, various sources Tough demography of India is not relatively unfavorable as compare to these three countries as our country is in the stage of harvesting demographic dividend. But our GDP per capita income and employment rate is relatively very low to the counterparts. We have less number of olds compare to the counterparts in percentage term but the system has to be futuristic where the traditional PAYG scheme is incapable of delivering service. In order to be sustainable in the long run„‟Pension funds and annuity providers need to effectively manage the longevity risk of their members. Members may live longer than expected or accounted for in the actuarial calculations involved in the provision of pensions. Mismanaged longevity risk can deteriorate finances, cause bankruptcy and expose members to the risk of losing their pensions. To safeguard against this risk, pension funds and annuity providers must provision for future improvements in mortality and life expectancy. Further, effective management of longevity risk must be supported by the regulatory mechanism‟‟.(OECD website 2014). It has also been observed in India that average life expectancy has increased by 5 years since the year 2004. So it could also be suggested that the retirement year could be extended for few years that would reduce the pension burden at the same time increase the assets for investment and growth. The OECD weighted average asset-to-GDP ratio for pension funds increased from 73.5% of GDP in 2011 to 77.0% of GDP in 2012, above the 2007 year-end level of 75.6%, with the Netherlands still achieving the largest ratio in 2012, at 160.2%.(OECD website 2014) It is also observed that pension assets in the system is very less in India as compare to the counter parts .In USA, Norway, and Sweden pension assets to GDP is 74.5%, 7.6% and 9.2% respectively where as in India the pension assets to GDP is even less than 1%(OECD website 2014). Hence it also suggested that the government need to pay attention to increase the participation through education, awareness, communication and International Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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service delivery. Hence in order to make system sustainable the PFRDA need to accelerate the pace of action and participation. INTEGRITY The integrity sub-head we will consider several items that influence the overall governance and operations of the system which affects the level of confidence that the citizens in each country have with their system. (Mercer global pension index 2014). In this segment we have very few data for comparison as our system is almost new to the reformed system. Moreover it could be stated that the regulatory body PFRDA need to exercise it power efficiently in regard to governance, regulation, supervision, and coordination as we have already experienced fraud and scam in our financial system. FLEXIBILITY Our system is almost running at par with other system in term of flexibility. Like we have the flexibility in choosing fund managers, annuity providers, a part from this we have also the option of choosing assets combination for investment. PFRDA has also provided the flexibility of changing fund manager if you are not satisfied with the performance and return of the fund manager. But there is some short of governmental and legislative control in the decision making power of PFRDA though it is a statutory autonomous body. EFFICIENCY National pension system status, March 2013 Employer/sector Number of subscribers Corpus under NPS (in USD million) 1 Central government 1 125 871 3 099 2 State government 1 585 349 1 778 3 Private sector 202 679 228 4 NPS-Lite1 579 690 75 5 Total

4493589

5180

In this section of comparison bylooking at the above statistics provided by the OECD one can easily say that our system is really inefficient in reaching to the people. In a country like India where more than 1.21 billion people reside out of which only 4493589 formally registered in the NPS system. At the same time other countries taken for study are providing pension benefits to almost all the old citizens of the country. One of the major reason for such kind of situation is unemployment and poverty of the country. Those people who are deprived of basic needs of life at present how could they be able to think about contribution for future security. We are in the 67th year of independence still 22% of people are living below poverty line which line is also getting down with the increase in inflation (the CPI is always above 10%). Our rate of employment is 21.3%. A part from this our infrastructural support is also inadequate to deliver service to the people. International Research Journal of Management Sociology & Humanity ( IRJMSH ) www.irjmsh.com

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We need to have crystal blueprint, strong institutional architecture and sound mechanism for implementation. In regard to the fund manager performance NPS has generated returns that are a tad higher than the risk-free rate of the Public Provident Fund (PPF). Average returns on all fund houses have ranged between 7.6 per cent and 8.6 per cent in the past four years since the returns have been made available, according to Value Research data. Returns from PPF stand at 8.7 per cent.(Business standard)

Percentage distribution of population by broad age groups to total population (Business Standard) SUGGESTION After making all the above comparison we are making small endeavor to give few suggestion which are completely personal observation. 

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It is visible that the traditional pay as you go scheme seems incapable of handling the old age financial security at the same time the defined contribution system looks sustainable in the long run. It has some characteristics which is giving its comparative advantage like demography, contribution- pension accumulationinvestment-growth, reducespublic spending, etc. Hence the government could go ahead with the National Pension System which is based on defined contribution structure. Coverage of our system is very small, for me unemployment and poverty are the primary reason to it. Because of unemployment and poverty people would not be able to make any contribution for future security as they are struggling with the present. Secondary reasons are lack awareness about the system, financial illiteracy, infrastructural inadequacy, lack of promotion of system etc.Hence it is suggested that government, PFRDA, individual, and society must pay close attention to all these problems. We should have the provision of minimum guaranteed pension for olds.

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We could also experiment Sweden system income pension and premium pension to diversify the risk. For wide coverage of the system we need to incorporate pension for agricultural farmers. As they are the large working segment of the country. Partial government financial assistance can be considered to increase the participation from the farmer communities. A wide research is needed in this area. PFRDA need to be alert and vigilant as we have already seen fraud and scam in financial system ofours and abroad. So that trust and confidence of the participant can be entertained in the system. By looking at the increasing life expectancy or longevity there could be an extension in the retirement age.

Conclusion In the core of the conclusion we could say pension payment is a high public policy agenda that the proposition of defined contribution model of pension as a substitute of PAY AS YOU GO is a futuristic orientation. We could think of economic development of the country as well as financial security of olds with the accumulated pension wealth. But the system has not given the importance to the poor and low income people who could not contribute for the future security. A part from this system has no provision of minimum pension guarantee, no provision of pension for agricultural farmers. Our system looks relatively incapable of handling the old age pension security for the country. Probable reason to these may be lack ofawareness, education, infrastructure, and employment. I would personally say the low level of employment is one of the major reasons for low coverage of the system because unemployed poor people are incapable to contribute for their future financial security. Hence government and PFRDA afford in these direction is imperative. Minimum pension benefit assurance and pension for agricultural farmers could also be a new dimension in the system. PFRDA attempt of introducing product like SWABALAMBAN, NPS LITE etc. could be considered as a good step forwards in direction of wide coverage. REFERENCES Ahuja, Rajeev. "Old-Age Income Security for the Poor." Economic and Political Weekly, septmber 13, 2003. 

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