In a move that would catalyse flow of personal financial savings into capital markets and, thereby, industrial production, the Lok Sabha on Wednesday passed the Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011.
The Bill, which will give the interim pension regulator a statutory status, will help accelerate the panning out of the defined-contribution pension system. The National Pension System (NPS) has already been adopted by the Central government ? all employees joined since 2004 have embraced the NPS ?and as many as 26 state governments.
With the Pension Bill aligning the FDI ceiling in the sector with that in the insurance law, the passage of the Bill would automatically open up Indian pension fund management to foreign players, with FDI limit of 26%.
The passage of the Bill in the lower House comes after a decade-long wait since the interim regulator PFRDA was set up in 2003 by the NDA government. Though the Bill was first introduced by the UPA-I government in 2005, it could not be passed due to opposition from some of the allies of the ruling alliance ? the Left parties during UPA-I and the Trinamool Congress and others during UPA-II.
Moving the Bill for passage in the lower house, finance minister P Chidambaram said the corpus of the NPS has grown to Rs 34,965 crore since its inception in 2004 and a statutory regulator was needed to oversee the operations and take action against any erring pension fund manager.
?The opening of the pension sector even at 26% will encourage foreign investors to put their money in India as we have a huge population which needs social security cover. We do not have pure pension products now, but once there are more players, there will be more products which will help channelise this pension money into the economy,? said Vineet Agarwal, director, tax, at KPMG in India.
So far, PFRDA has granted licence to eight leading financial institutions and banks ?LIC, SBI, UTI AMC, ICICI Bank, HDFC Bank, Reliance Capital and DSP Blackrock — and many more are awaiting to tap the long-term savings of the world’s second most populous country.
State-run firms, private companies and individuals have also started enrolling for the defined contribution scheme. So far, NPS has a little over 52.8 lakh subscribers — about 12.1 lakh central government employees, 17.8 lakh state government employees and 2.5 lakh private sector employees and about 20.4 lakh individuals.
Some of the key amendments in the PFRDA Bill were made based on the recommendation of the standing committee on finance. The amendments includes foreign investment in the pension sector at 26% or such percentage as may be approved for the insurance sector, whichever is higher. The Bill also included a provision that allows a subscriber seeking minimum assured returns to opt for investing his funds in such scheme providing minimum assured returns as may be notified by the PFRDA and withdrawals from pension schemes will be permitted from the individual pension account subject to the conditions as may be specified by the regulations.
At least one of the pension fund managers shall be from the public sector. The Bill also included a provision to set up a vibrant Pension Advisory Committee with representation from all major stakeholders to advise PFRDA on important matters of framing of regulations under the PFRDA Act.
India’s pension sector has the potential to grow exponentially in coming years as the retiring population is set to grow from 61.1 million to 205.7 million by 2050, according to Greater Pacific Capital.
