Lok Sabha clears pension bill, foreign investors can hold 26% stake
The Lok Sabha on Wednesday cleared the pension bill after nearly a decade.
TNN | Sep 5, 2013, 01.28AM IST
NEW DELHI: After nearly a decade, the Lok Sabha finally cleared the pension bill that paves the way for individuals to plan for their post-retirement needs and allows foreign investors to acquire up to 26% stake in the sector.
The Pension Fund Regulatory and Development Authority (PFRDA) Bill was passed by the lower House after some tough political negotiations that included the government accepting a crucial suggestion made by the parliamentary standing committee on finance headed by BJP's Yashwant Sinha.
The government agreed to stipulate that the pension regulator will ensure that fund managers offer at least one product with an assured minimum return to protect investors from market volatility. The investment option will be in addition to the schemes that are already available. The schemes on offer give investors the choice to invest up to 50% in shares, that offer higher returns but are riskier. Alternatively, they can take a safer bet and invest the entire corpus in government bonds.
In return, BJP agreed to the proposal to allow foreign investors acquire up to 26% stake in the sector with the rider that the ceiling will go up if the cap for insurance is raised to 49% as has been suggested by the government. With the passage of the bill, the government is hoping to make a stronger pitch for attracting investment and boost sagging sentiments.
But investors are unlikely to be lured as global conditions still remain fragile and there is no progress on the insurance legislation which again has been pending for years.
The pension bill, which still needs to be approved by Rajya Sabha, provides for statutory backing to PFRDA, the pension regulator, and help it frame rules and levy penalties. Currently, it regulates the National Payment System (NPS) through a trust that has entered into agreements with fund managers, points of presence that collect money from subscribers, and record-keepers. NPS has a corpus of Rs 35,000 crore from nearly 53 lakh subscribers, a majority of whom are government employees.
"The immediate impact is that it will help provide better regulation of the sector as it will give the regulator powers... it will provide more confidence to investors and will have a positive impact," PFRDA chairman Yogesh Agarwal told TOI after Lok Sabha passed the bill.
Several individuals from the private sector have shied away from NPS due to lack of clarity over its future. Although government employees moved to a contributory pension mechanism from 2004, it wasn't until 2008 that the NPS actually became operational with the appointment of fund managers for private sector and other infrastructure in place.
The government offers little by way of social security to those working in the private sector with the Employees' Pension Scheme being the only option for those subscribing to the Employees Provident Fund. EPS covers only a small fraction of the population as a majority of people are part of the unorganized sector.
NPS is seen as the lowest-cost option for retirement planning given the exorbitant commission charged by life insurance companies. It is touted as a scheme that is more cost efficient than mutual funds, some of whom have pension schemes.
"The enactment of a law will strengthen the market and help people save for old age in a cost efficient manner," said Balram Bhagat, head of UTI Retirement Solutions.
The Lok Sabha on Wednesday cleared the pension bill after nearly a decade.
TNN | Sep 5, 2013, 01.28AM IST
NEW DELHI: After nearly a decade, the Lok Sabha finally cleared the pension bill that paves the way for individuals to plan for their post-retirement needs and allows foreign investors to acquire up to 26% stake in the sector.
The Pension Fund Regulatory and Development Authority (PFRDA) Bill was passed by the lower House after some tough political negotiations that included the government accepting a crucial suggestion made by the parliamentary standing committee on finance headed by BJP's Yashwant Sinha.
The government agreed to stipulate that the pension regulator will ensure that fund managers offer at least one product with an assured minimum return to protect investors from market volatility. The investment option will be in addition to the schemes that are already available. The schemes on offer give investors the choice to invest up to 50% in shares, that offer higher returns but are riskier. Alternatively, they can take a safer bet and invest the entire corpus in government bonds.
In return, BJP agreed to the proposal to allow foreign investors acquire up to 26% stake in the sector with the rider that the ceiling will go up if the cap for insurance is raised to 49% as has been suggested by the government. With the passage of the bill, the government is hoping to make a stronger pitch for attracting investment and boost sagging sentiments.
But investors are unlikely to be lured as global conditions still remain fragile and there is no progress on the insurance legislation which again has been pending for years.
The pension bill, which still needs to be approved by Rajya Sabha, provides for statutory backing to PFRDA, the pension regulator, and help it frame rules and levy penalties. Currently, it regulates the National Payment System (NPS) through a trust that has entered into agreements with fund managers, points of presence that collect money from subscribers, and record-keepers. NPS has a corpus of Rs 35,000 crore from nearly 53 lakh subscribers, a majority of whom are government employees.
"The immediate impact is that it will help provide better regulation of the sector as it will give the regulator powers... it will provide more confidence to investors and will have a positive impact," PFRDA chairman Yogesh Agarwal told TOI after Lok Sabha passed the bill.
Several individuals from the private sector have shied away from NPS due to lack of clarity over its future. Although government employees moved to a contributory pension mechanism from 2004, it wasn't until 2008 that the NPS actually became operational with the appointment of fund managers for private sector and other infrastructure in place.
The government offers little by way of social security to those working in the private sector with the Employees' Pension Scheme being the only option for those subscribing to the Employees Provident Fund. EPS covers only a small fraction of the population as a majority of people are part of the unorganized sector.
NPS is seen as the lowest-cost option for retirement planning given the exorbitant commission charged by life insurance companies. It is touted as a scheme that is more cost efficient than mutual funds, some of whom have pension schemes.
"The enactment of a law will strengthen the market and help people save for old age in a cost efficient manner," said Balram Bhagat, head of UTI Retirement Solutions.
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