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Govt may allow pension funds to invest in stocks

PM says upto 5% of contributions to the new pension scheme may be invested in stocks, reports Deepak Joshi.

india Updated: Jan 22, 2007 18:01 IST

Stepping up efforts at building a consensus on a new pension scheme (NPS), Prime Minister Manmohan Singh on Monday urged the state chief ministers to strive for a comprehensive social safety net focusing on old age income covering the bulk of population.

He said contributions to the new pension scheme may be invested in line with guidelines for non-government provident fund.

Non-government pension funds are allowed to invest upto five per cent of the funds in shares of companies that have an investment grade debt rating from at least two rating agencies.

The guidelines include 25 per cent investment in central government securities, 15 per cent in state government securities, 25 per cent in bonds and securities of public financial institutions and 30 per cent in any of these three categories.

Singh said the pattern permitted for non-government provident funds would fetch a superior return for NPS funds than that given by the government at present without compromising on the safety factor.

"The suggestion that is being considered is that, pending a resolution of all the issues related to Pension Fund Regulatory and Development Authority (PFRDA) Bill, these accumulated funds may be allowed to be invested in accordance with the investment pattern prescribed for non-government Provident Funds," the prime minister stated.

The move to attain parliamentary approval for setting up PFRDA to deal with a comprehensive defined contribution pension scheme for government and unorganised sector employees has been stalled due to Left opposition to the move.

Nearly Rs 1300 crore has accumulated from the deductions made from government employees who joined service since January 1, 2004.
Outlining his vision for a comprehensive social security net, he said PFRDA aims to put in place the architecture and the delivery mechanism for pension schemes.

" It is my belief that there is a lot to be gained by moving forward and allowing a multiplicity of pension products delivered by a variety of agencies to be offered to our people," he added.

"The rising pension bills at all levels of government would be increasingly difficult to finance in future, given the other demands that are there on our resources, particularly for enhancing our expenditures on essential social sectors such as health and education.

We need better management of our pension liabilities so that state finances can be managed in a healthy, sustainable way in future," the prime minister said.

Setting the tone for the meeting, Finance minister P Chidambaram said taking into account the recommendations of the committee, the Centre has proposed that the Bill may be passed with essential features like, freedom for individuals to choose their investment portfolio and management of the funds by professional bodies.

Pension reforms have assumed importance as both the Centre and state governments are facing the rising bill under this head.

The total expenditure of the Central government on pension payments to its retired employees has gone up from Rs 3,272 crore in 1990-91 to Rs 28,963 crore in 2005-06.

"Assuming a continuation of the trend, projections indicate that pension expenditure of the Centre could reach Rs 35,020 crore by 2009-10. For the States, the projected figure as high as Rs 65,081 crore," he added.

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First Published: Jan 22, 2007 18:01 IST