Management of pension funds

Employees Provident Fund Organization (EPFO) is the major organization which deals with the pension system in India. The Employees' Provident Fund Organization, India, is one of the largest provident fund institutions in the world in terms of members and volume of financial transactions that it has been carrying on.

In comparison, pension and provident fund management in India makes an excuse for ‘poor management'. It represents a total disregard for prudent investment management and actuarial principles. Worse still, it is based on the whims and fancies of the Ministry of Labor, which itself has a blatant conflict of interest in India. Pension fund managers in India do not need to worry about the pension fund management as most of the management decisions are taken according to the government norms.

Mission of Pension Funds in India

Pension funds in India have no clear mission and trustee's primary mission is to maintain compliance with the guidelines and regulations. The first objective of trustees is to achieve the prescribed investment pattern. The second objective is to achieve at least returns declared by the government provident fund. In their mission there is a lack of pension fund risk, risk tolerance and asset-liabilities management system. The focus has rarely been on ensuring adequate funding level, matching of assets and liabilities or target replacement rates. The reason is partially the limited flexibility in investment management under the regulatory framework and partially a lack of focus on pension fund risk and the risk tolerance of the plan sponsors.

Assets Allocation Practice in India

A long-term asset mix is required to sustain the investment objective of pension funds. The Insurance Regulatory and Development Authority (Investment) Regulations, 2000 (IRDA, 2000) suggest that for pension and general annuity business, every insurer shall invest and at all times keep invested assets of Pension Business, General Annuity Business and Group Business.