Efficiency evaluation of the pension funds: Evidence from India

• Published date: 01 December 2022
• Author: Shoaib Alam Siddiqui
• Date: 01 December 2022
• DOI: http://doi.org/10.1002/pa.2806

RESEARCH ARTICLE

Efficiency evaluation of the pension funds: Evidence from India

Shoaib Alam Siddiqui

Department of Business Studies, Sam

Higginbottom University of Agriculture,

Technology and Sciences, Allahabad, India

Correspondence

Shoaib Alam Siddiqui, Department of Business

Studies, Sam Higginbottom University of

Agriculture, Technology and Sciences,

Allahabad, India.

Email: siddiqui.shoaibalam@gmail.com

The purpose of this article is to investigate the technical efficiency of Indian pension

funds using data envelopment analysis (DEA) and to assess the reasons of inefficiency if

any. This article analyzes the efficiency performance of all the pension funds available to

Indian subscribers from the year 2015–2019 using radial measurers (BCC) of DEA based

on secondary data collected from the annual reports of New Pension System Trust. Find-

ings indicate that the average efficiency of Indian pension funds was 75.38% and this

sector experienced overall stability in the average efficiency levels during the study

period. Almost 40% of the pension funds operated efficiently in one or more years during

the study period. The minimum slack was found in the input “expense ratio.”This con-

firms that risk associated with investments is the cause of inefficiency and not the

expense ratio in the Indian pension sector. Tobit regression is applied to explore the main

drivers of efficiency in the India pension funds. The study finds that fund size has positive

association with the efficiency of the pension funds. Public sector funds were more effi-

cient than the private sector funds. This study is first of its kind that has assessed the effi-

ciency of Indian pension funds. The study brings into light the operating characteristics

and efficiencies of the Indian pension funds for the period 2015–2019 and therefore

holds important insights for policy makers, practitioners, and decision-makers.

KEYWORDS

data envelopment analysis, India, new pension scheme, pension funds, technical efficiency

1|INTRODUCTION

The pension sector in India has great potential and is one of the

fastest-growing sectors of the Indian financial system. India has been

a late starter in introducing a regulatory framework and a universal

pension plan. Indian pension sector has mainly covered organized sec-

tor, almost 10% of the Indian population that means there is tremen-

dous potential in the Indian pension sector. Initially, the Indian

pension industry offered “defined benefit”(DB) pension plans to the

central government (CG), state government (SG), and public sector

employees. DB pension system was stressing the Indian fiscal system

and there was also need to provide pension schemes in the unorga-

nized sector of the economy. Therefore, the government of India

established pension funds regulatory and development authority

(PFRDA) in the Indian pension sector. PFRDA introduced a new pen-

sion scheme (NPS) in 2004 for government employees in India. Later

on, it was opened for all the sections of the society in the year 2009.

NPS is now open for both organized as well as unorganized sector.

The NPS achieved impressive growth of 35.65% in their asset

under management (AUM) during the year 2018–2019 as compared

to the previous year 2017–2018. All the pension funds recorded

double-digit growth. The detail of AUMs under various schemes is

given below in Table 1. As is evident from Table 1, AUM of CG, SG,

Atal Pension Yojana (APY), and Scheme A Tier I (A1) schemes posted

high growth of 28.32%, 36.98%, 79.69%, and 198.77%, respectively.

This huge corpus of fund is managed by the following fund man-

agers. The list of fund managers and AUM is given below in Table 2.All

fund managers continued to register impressive growth in AUM. The pen-

sion sector in 2019 recorded growth of 35.65% in the AUM as compared

to 2018. Being the new entrant in the pension market, Birla Sunlife Pen-

sion Management Ltd. recorded the highest growth of 285% in AUM in

the year 2019 (NPS Trust annual report, 2018–2019).

Received: 4 August 2020 Revised: 23 October 2021 Accepted: 14 December 2021

DOI: 10.1002/pa.2806

J Public Affairs. 2022;22(Suppl. 1):e2806. wileyonlinelibrary.com/journal/pa © 2021 John Wiley & Sons Ltd. 1of10

https://doi.org/10.1002/pa.2806