On January 1, 2004, Pension Funds will come into force in India. Government servants will have to subscribe to them. This article looks at the present provident fund system, its drawbacks and sheds light on the proposed system.

India, the second most populous nation on the earth today is on the threshold of a demographic change. while the total population is expected to rise by 49% between 1991 and 2016, the number of elderly (persons aged 60 and above) is expected to increase by 107%, to 113 million. In other words, the share of the aged in the total population will rise to 8.9% in 2016. Demographic projections further suggest that the number of the aged will rise even more rapidly to 179 million by 2026 - to 13.3% of the population.^* In this scenario, social security for the old age is of paramount importance. Pension funds, thus, provide this much-needed security.

In India, pension is given to most central and state government employees. Other employees in the organized sectors have to participate in the Employee Provident Scheme (EPS). People not employed in the organized sector can save voluntarily in the Public Provident Fund (PPF). In India, all workers in establishments with more than 20 employees are required to participate in one of the two social security programs. These two funded pension funds are the Employee Provident Fund (EPF) and the Employee Pension Scheme (EPS). The Employees Provident Fund Organization (EPFO) oversees both these funds. The management of the EPFO is under the ambit of the Ministry of Labor, Government of India. Workers also participate in the Employees Deposit Linked Insurance Scheme, also overseen by the EPFO, which pays lump sum death benefit to employees in service.

For the Employees Pension Scheme 1995, no separate contribution is payable additionally by the member for the Pension Scheme benefits. The Central Government continues contributing at the rate of 1.16% on wages at the end of the year. On ceasing employment earlier than 58 years, pension may be availed by a member at his option.

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