This paper analyses the formal social security systems of India and Sri Lanka. While many of the social, demographic, and economic indicators differ markedly between the countries, the structure of the social security systems, challenges, and reform directions are quite similar. Thus, the provident fund organizations in both countries need to modernize and benchmark their governance, operations, and investment policies. The dualism in their systems, which has resulted in relatively generous non-contributory pensions being provided to civil servants, also needs to be addressed. This dualism and the fiscal unsustainability of current civil service pension arrangements lend urgency to reforms in this area in the two countries. The prospects for voluntary tax-advantaged private sector schemes are encouraging, particularly in India. The conditions for reforms are more favourable now owing to hopeful signs of an end to longstanding conflict in Sri Lanka, and decade-long experience with financial sector reforms in India.

This paper reviews the current state of the Indian pension system. The Indian experience could potentially influence policy decisions in other developing countries, especially those with similar reliance on the national provident fund system. Institutional features of various retirement benefit schemes are highlighted and their deficiencies are discussed.It is argued that low coverage level, underperformance of provident fund schemes due to investment restrictions, and financial difficulties in administering unfunded public pension programmes have rendered the current system ineffective and unsustainable. The failed experiments with ad hoc reform initiatives in the recent past further emphasize the need for a structural and lasting change. The paper concludes with some policy directions for reforming the Indian pension system.T he debate on pension system reforms is intensifying in India. The ongoing financial sector reforms have made significant progress in the spheres of banking, capital and currency markets and now provide an opportunity to revamp the hitherto untouched sectors like insurance and pension. While insurance sector reform is already under way, the effect of which to a certain extent is expected to percolate into the private pension market, a comprehensive policy for pension system restructuring is yet to be undertaken.A variety of problems plague the pension system in India. The gradual collapse of the traditional old age support mechanisms and the rise in the elderly population highlight the need for strengthening the formal channels of retirement savings. The imperative, more proximate reasons for pension reform are also well known -skewed coverage of the existing

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