Payouts get deferred and the expanded corpus can be invested across asset classes to generate better returns for employees. Advanced economies have done this, especially after the pandemic. EPFO doesn’t have the legal mandate to raise the retirement age. But structural problems in the pension system must be addressed as changing demographics will continue to put pressure on defined-benefit plans – offering guaranteed retirement benefits for employees.
EPFO must vastly improve its fund management, and ensure robust governance. Over 85% of its corpus – at about ₹12 lakh crore – is invested in debt and generates suboptimal returns. It pushes GoI to subsidise the returns for EPF subscribers. With better data, its administrative ability to compute liability is better now. This should enable EPFO to manage funds more efficiently. Reporting of unfunded liabilities should be more transparent too.
Widening the array of asset classes for EPF subscribers to diversify their risk and maximise returns makes sense. There is no reason why a sliver of retirement savings can’t be apportioned to venture capital that will help startups grow, boost innovation and enable EPF subscribers to earn better returns.
Long-term capital for infrastructure will also be available when the EPFO invests in, say, infrastructure investment trusts. GoI should also revive the proposal to allow workers to voluntarily migrate to the National Pension System that generates superior returns (typically 100-200 basis points higher) than EPFO.