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Lok Sabha nod to FDI in pension sector

The Lok Sabha on Wednesday passed the Pension Fund and Regulatory Development Authority (PFRDA) Bill aimed to open up the pension sectors to foreign investment.

delhi Updated: Sep 05, 2013 04:59 IST
HT Correspondent
HT Correspondent
Hindustan Times
pension bill,lok sabha,parliament

The Lok Sabha on Wednesday passed the long-awaited Pension Fund and Regulatory Development Authority (PFRDA) Bill 2011 aimed to open up the pension sector to overseas investors amid expectations that it will draw foreign capital into an economy that is struggling to claw out of a crippling slowdown.

The Bill, once voted into law after Rajya Sabha passes it, will pave the way for setting up a statutory watchdog for the sector aimed at providing social security to millions of employees through efficient intermediation of long-term household savings.

Currently, the pension sector has its own regulator, PFRDA. The interim PFRDA is functioning since 2003 through an executive order, and does not have any statutory or quasi-judicial powers.

The Bill makes the “unstatutory authority (into) a statutory authority," Finance minister P Chidambarm said after the debate on the Bill, adding the statutory authority will have powers to penalise violators.

The Bill but stipulates that foreign investment ceiling in the pension sector should be identical to the insurance sector.

If laws are amended to allow higher FDI from its current level of 26% in the insurance sector, the same will also be applicable to the pensions sector.

Once the Bill is enacted the India could see pure pension products available to those employed in the private sector, which would be governed by a regulatory authority. Currently, most pension plans are insurance-linked.

It will allow for withdrawals for specified purposes and subscribers will be able to choose from a range of schemes including those linked to investment in stock markets as well as low-risk government bonds that may offer assured returns.

"When the bill is passed, I expect that some more FDI (foreign direct investment) will come in," Chidambaram said.

Chidambaram said that the government has accepted most of the suggestions by the parliamentary standing committee of finance.

He said the regulator PFRDA will notify schemes where assured returns are offered.

The NPS is based on the principle that "you save while you earn" especially for retirement period and is mainly for those who have a regular income, Chidambaram said.

PFRDA’s National Pension System (NPS) was introduced by the government and made mandatory for all new recruits to the government except armed forces with effect from January 1, 2004. It was opened to all citizens of India from May 1, 2009 on voluntary basis.

First Published: Sep 04, 2013 18:42 IST