Cabinet okays Pension Bill
NEW DELHI: The cabinet on Wednesday cleared the pension bill but decided not to limit foreign direct investment in the sector, retaining the flexibility to prescribe or change limit through an executive decision.
The government will place the Pension Fund Regulatory and Development Authority Bill 2011 in the winter session of Parliament, beginning next week.
The government will place the Pension Fund Regulatory and Development Authority Bill 2011 in the winter session of Parliament, beginning next week.
Once approved, it will allow pension fund managers to attract foreign capital and expertise in the management of retirement savings.
"The government is of the view that the FDI cap in the pension should be at 26% on a par with the insurance sector... However, it would like to retain the flexibility of changing the cap and that is why it has not been kept as part of the bill," said an official after the cabinet meeting, chaired by Prime MinisterManmohan Singh.
The parliamentary standing committee on finance, headed by senior BJP leader and former finance minister Yashwant Sinha, wanted the government to specify the FDI cap in the bill itself.
But the government was reluctant to specify the FDI limit because of the difficulty it is facing in getting the insurance law amended to raise the FDI from 26% to 49%. The Insurance (Amendment) Bill has been pending since 2008.
The government has also not agreed to the suggestion of an assured return and greater flexibility to subscribers to withdraw funds from their accounts.
The interim pension authority currently administers the National Pension Scheme (NPS), which manages retirement savings of central government employees who joined service after January 2004. Subsequently, the scheme was opened to employees of state governments and private individuals.
The scheme has a corpus of about 10,000 crore and over 24 lakh subscribers as of now.
The authority was functioning under an executive order, lacking statutory backing enjoyed by the other financial regulators.
The PFRDA Bill provides for establishment of a statutory authority to undertake promotional, developmental and regulatory functions for pension funds.
"This is a good beginning," said Gautam Bharadwaj, director, Invest India Economic Foundation.
PFRDA chairman, however, said it was too early to comment. "We will only talk once the bill gets passed," said PFRDA chairman Yogesh Agarwal.
The bill will pave the way for social security through efficient intermediation of household savings. But analysts say more steps need to be taken to make the sector attractive enough to foreign players.
"This step will not be able to solve any of the problems in the sector. The government needs to overhaul the NPS to make it more attractive for private players", said Value Research CEO Dhirendra Kumar.
The law could also redefine the jurisdiction of financial sector regulators as it empowers the interim pension watchdog to regulate all pension products, including those offered by entities under other financial sector regulators.
This comes in the backdrop of a public spat between insurance watchdog IRDA and market regulator Sebi over the regulation of unit-linked insurance plans
Cabinet nod for 26% FDI in pension sector
NEW DELHI: 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 side-stepped 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 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 side-stepped 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.
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.
Government approves 26% FDI in pension sector
but no guarantee of assured returns
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.
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.
Source : Economic Times.
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