26% FDI in Pension

The Cabinet on Wednesday approved changes in the Pension Fund Regulatory and Development Authority (PFRDA) Bill, which will also pave the way for 26% foreign investment in pension fund management companies, officials said. The PFRDA bill, which has been pending for long, is now expected to be taken up for approval in the Winter Session of Parliament starting on November 22. Officials said the Cabinet decided there would be no guarantee of assured returns on pension fund schemes. Earlier, the government had released contours of the bill but had sidestepped the issue of foreign investment limit in the sector to avoid any controversy. Even now, the FDI limit will not form part of the bill but will be included in the revised regulations. Several policymakers and experts had backed the idea of allowing 26% FDI in pension fund management companies, similar to the foreign investment norms in the insurance sector. “The government is of the view that FDI cap in the pension (sector) should be at 26%, at par with the insurance sector. However, it would like to retain the flexibility of changing the cap of FDI as and when required and that is why it has not been kept as part of the bill,” an official said. The legislation, which was introduced in the Lok Sabha on March 24, was sent to the Standing Committee. It was examined by a panel headed by former finance minister Yashwant Sinha. The panel had asked the government to set the FDI cap in the legislation and had suggested providing minimum returns to pension fund subscribers. Officials said the government has also rejected the suggestion for providing greater flexibility to subscribers to withdraw funds from their accounts. “The flexibility of withdrawals from funds under the pension scheme, however, would be tightened. It would be allowed only in case of genuine needs... It would be considered when the need is critical. It will not be allowed for frivolous reasons,” the official said. The government upheld the panel’s suggestion for greater participation of employees and stakeholders in the Pension Advisory Committee. The PFRDA Bill, if approved, will also pave the way for conferring statutory backing to the authority for promotional, developmental and regulatory functions in the pension fund sector. The UPA government has lined up several key legislations for the Winter Session and has reached out to the Opposition parties for their support in getting them approved. The Manmohan Singh-led government has been on the back foot after a string of scandals emerged since last year. The government expects to get the key bills approved, which would help dispel doubts about its ability to move ahead with reforms. The UPA government has also been trying to raise FDI limit in the insurance sector to 49% from the existing 26% but has met with resistance from Opposition parties. The move has been pending in Parliament for several years now. The National Pension Scheme, launched in January 2004, has nearly 24 lakh subscribers, mostly those employed by the federal government. Employees Provident Fund Organisation subscribers get 9.5% return on their savings.