The Aftermath of Structural Pension Reform. Cheolsu Kim

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       THE AFTERMATH OF STRUCTURAL PENSION REFORM

       MANAGING LEGACY COSTS OF DEFINED BENEFIT PENSIONS IN INDIA

       CHEOLSU KIM GARY HENDRICKS

       Asian Development Bank

      © 2011 Asian Development Bank

      All rights reserved. Published in 2011.

      Printed in the Philippines.

      ISBN 978-92-9092-492-0

      Publication Stock No. BKK114142

      Cataloging-In-Publication Data

      Kim, C., and G. Hendricks.

      The aftermath of structural pension reform: Managing legacy costs of defined benefit pensions in India.

      Mandaluyong City, Philippines: Asian Development Bank, 2011.

      1. Pensions. 2. India. I. Asian Development Bank.

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      TABLE, FIGURES, AND BOX

      Table

1	Derivation of Weights for State Databases, Participating States	37
Figures
1	Cost Rates per Participating State, 2010–2060	39
2	Comparison of Cost Rates under Two Scenarios, Bihar, 2010–2060	42
3	Comparison of Cost Rates under Two Scenarios, Assam, 2010–2060	43
4	Comparison of Cost Rates under Two Scenarios, Madhya Pradesh, 2010–2060	44
5	Comparison of Cost Rates under Two Scenarios, Jharkhand, 2010–2060	44
6	Comparison of Cost Rates under Two Scenarios, Chhattisgarh, 2010–2060	45
7	Effects of Mortality on Defined Benefit Scheme Cost Rates, 2010–2060	47
8	Effects of Retirement Age on Defined Benefit Scheme Cost Rates, 2010–2060	49
9	Effects of Lower Rates of Revenue Growth on Defined Benefit Scheme Cost Rates, 2010–2060	51
10	Ratio of New Pension Scheme Contributions to State’s Own Tax Revenue, 2010–2060	54
11	Cost Rates with New Pension Scheme Contributions Added to Defined Benefit Scheme Outlays, 2010–2060	55
12	Effects of Reductions in Leave Encashments on Defined Benefit Scheme Cost Rates, 2010–2060	58
13	Effects of Options for Reducing Gratuities on Defined Benefit Scheme Cost Rates—Assam, Bihar, Chhattisgarh, and Jharkhand, 2010–2060	59
14	Effects of Decoupling Wage and Pension Increases on Cost Rates, 2010–2060	61
15	Effects of Delayed Retirement on Defined Benefit Scheme Cost Rates, Assam and Jharkhand, 2010–2050	65
16	Effects of Young Defined Benefit Scheme Participants Transferring to the New Pension Scheme on Defined Benefit Scheme Cost Rates, Bihar, 2010–2060	67
Box
1	Suggested State Administrative Framework for the New Pension Scheme	80

      ABBREVIATIONS

ADB	– Asian Development Bank
DBS	– defined benefit scheme
DDO	– drawing and disbursing officer
DGPFO	– district general provident fund officer
GPF	– general provident fund
JharNet	– Jharkhand State Information and Communication Network
NIC	– National Informatics Centre
NPS	– New Pension Scheme
NSDL	– National Securities Depository Limited
OTR	– own tax revenue
PFRDA	– Pension Fund Regulatory and Development Authority
PPO	– pension payment order
PRAN	– permanent requirement account number
SBI	– State Bank of India
TCS	– Tata Consultancy Services

      NOTE

      The fiscal year of India ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends.

      FOREWORD

      On 1 January 2004, the Government of India embarked on the most important pension reform since its independence in 1947. It replaced the traditional defined benefit pension