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Pension bill passage will not lead to NPS implementation

The NPS (New Pension System) has been operating for a while now without the law. Dhirendra Kumar writes.

india Updated: Nov 21, 2011 21:55 IST

Last week came the news that the Union Cabinet has approved the new pension bill. Now, all that remains for the Pension Fund Regulatory and Development Authority (PFRDA) to start operating as a body with statutory authority is a vote in Parliament, which we are told to expect during the winter session. However, we’re now about seven years late on this one and no one should wait with baited breath for the bill to be passed. The NPS (New Pension System) has been operating for a while now without the law.

Curiously, much has been made of the fact that once the PFRDA Bill becomes the law, foreign direct investment (FDI) will be possible in pension funds. The law allows for FDI but does not set a limit for the foreign stake, which supposedly means that pension funds won’t get blocked up on the issue of stake like insurance. This issue of FDI in pension is completely spurious. No one needs FDI in pensions and no one is queuing up to invest in it either. Running a pension fund needs a miniscule amount of capital, needs no special know-how that only exists with a foreign partner and — as has become clear — means miniscule profits, if any.

The sad part is that as far as the public part of it is concerned, the new pension system has already in severe strife, having succeeding in attracting the attention of just a tiny handful of investors. There was a time when the passage of the PFRDA bill would have been interesting. However, today the adoption of the NPS by the public is stuck in a whole different mess, which the bill won’t solve. There were two parts to the original vision of the NPS. One — rescuing the government from a massive future liability of government employees’ pensions — will be achieved. The other — a retirement support system for the masses — is no nearer.

First Published: Nov 21, 2011 21:51 IST