Lok Sabha passes long-pending Pension Bill

The Lok Sabha on Wednesday passed the Pension Fund Regulatory and Development Authority (PFRDA) Bill 2011, an important economic legislation that will pave the way for foreign investment in the sector.

The Bill allows 26% foreign investment in thePension sector and gives statutory backing to the interim pension authority that had been functioning on executive authority for over a decade now. It also gives legal backing to the pensions regulator to create a social security architecture that channels savings of households into the financial sector.

The PFRDA manages the New Pension System, a defined contribution scheme for the central government that many states have joined and is also now open to private individuals.

The scheme has about 5.3 million subscribers and manages a corpus of Rs 35,000 crore. The Bill, first introduced in March 2005, could be passed only after the main opposition party, the BJP, lent its support. "The Rs 35,000 crore should not be managed by a non-statutory authority. It must be managed by a statutory authority. All that this Bill does is make the non-statutory authority a statutory authority," P Chidambaram said, moving the Bill for passage.

Chidambaram clarified that foreign investment in the pension sector will be at 26% and linked to that in the insurance sector. The Cabinet has already approved49% foreign investment in the insurance sector.

"I am confident that the Pension Bill will be passed in Rajya Sabha," Chidambaram said, adding that the government had accepted all but one suggestion of the Standing Committee on Finance that gave its recommendations on the Bill in August 2011.The PFRDA will notify New Pension System schemes that provide minimum assured returns, incorporated after the standing committee suggested some sort of guaranteed returns.

The NPS will also provide for withdrawal for some limited purposes, whichwasnot the case earlier.

Industry body CII said the reform will go a longway in increasing the coverage of formal pension and social security plans in India, where only about 12% of the activeworkforcehasanyformal pension or social security plan.

"The opening of the pension sector, even at 26%, will encourage foreign investors to put theirmoney, as India has a huge population that needs social security cover," said Vineet Agarwal, a director at KPMG India.

"We do not have much pension products now but once there are more players, there will be more products which will help to channelise this pension money into the economy." The Bill will further empower the PFRDA to regulate the NPS and other pension schemes that are not covered under any Act.

Source:-The Economic Times