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Govt approves 26 % FDI in pension sector

New Delhi: Approving changes in the PFRDA Bill, the Government today said it will allow 26 per cent foreign investment in the pension sector but no sectoral caps will be mentioned in the legislation.

Turning down the suggestion of Parliamentary Standing Committee, the Union Cabinet also decided that there would be no guarantee of assured returns on schemes by pension funds.

The Pension Fund Regulatory and Development Authority Bill 2011, which seeks to open the pension sector to private sector and foreign investment, will be taken up for consideration and passage in the Winter Session of Parliament beginning November 22.

The provisions concerning the FDI cap will be incorporated in the regulations once the Bill becomes an Act. “The government is of the view that FDI cap in the pension (sector) should be at 26 per cent, 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 spokesperson said.

The proposed legislation, which was introduced in the Lok Sabha on March 24, was referred to the Standing Committee by senior BJP leader and former Finance Minister Yashwant Sinha for scrutiny.

The committee wanted the government to specify the FDI cap in the legislation itself, besides providing for minimum guaranteed return to pension subscribers. The government has also turned down the suggestion of the Committee to provide greater flexibility to subscribers to withdraw funds from their accounts.

The PFRDA Bill provides for establishment of a statutory authority to undertake promotional, developmental and regulatory functions in respect to pension funds. Although the government decided to keep FDI cap in pension in line with insurance sector norms, it opted against mentioning it in the legislation.

The government, it may be mentioned, has not been able to raise FDI in insurance from 26 per cent to 49 per cent because the changes require amendments to law. The Insurance (Amendment) Bill has been pending since 2008. Once the FDI caps are mentioned in the regulations, it would be easier for the government to modify the ceilings, as and when needed, through an executive order.

As regards withdrawal, the official said, “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 government, however, upheld the Standing Committee’s suggestion to provide greater participation of the employees and stakeholders in the Pension Advisory Committee.

Besides other things, the Committee had suggested that the subscribers to the New Pension System (NPS) should get an assured return on their investments that is at least equal to the interest rate given by the Employees’ Provident Fund Scheme. The NPS, launched in January, 2004, has about 24 lakh subscribers, mostly those employed by the central government.

In India, no pension fund management company offers a guaranteed pension product. Subscribers to the Employees Provident Fund Organisation (EPFO) get 9.5 per cent interest on their contribution.

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