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