Suggests imposing a 26 % cap on FDI in pension programmes

A parliamentary panel has recommended that 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 Standing Committee on Finance headed by Yashwant Sinha has also suggested imposing a 26 per cent cap on foreign direct investment (FDI) in pension programmes.

“The committee notes that foreign investment in the pension sector may be capped at 26 per cent...,” the panel said in its recommendations on the Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011.

The Bill introduced in the Lok Sabha in March, 2011, has no provisions pertaining to FDI as yet.

The panel said spelling out the FDI policy in the provisions of the PFRDA Bill would have been more in the “fitness of things, as the pension fund managers holding the stake of the old age income security of their clients cannot be compared” with other agencies in the financial sector.

Currently, FDI is not allowed in pension schemes.

The committee also suggested that the government devised a mechanism so that subscribers of the NPS get guaranteed returns on their pension, so that they were not at any disadvantage via-a-vis other pensioners.

“The committee would recommend that the minimum rate of return on the contributions to the pension fund of the employee should not be less than the rate of interest on the Employees Provident Fund Scheme,” it said.

In India, no pension fund management company offers a guaranteed pension product.

Subscribers to the Employees Provident Fund Organisation (EPFO) get annualised interest of 9.5 per cent on their contribution. The NPS, launched in January, 2004, has about 24 lakh subscribers, mostly those employed with the Central Government.

The committee further suggested that the government made concerted efforts to extend the coverage of the scheme in both the public and private sector. The committee said that a Pension Advisory Committee be set up under the Bill which would look into the interest of the subscribers.

“The committee desires that the Pension Advisory Committee should be delegated more power and independence... play a more meaningful role by rendering advice suo—motu even on matters not referred to it,” the report said.

As on March 31, 2011, total assets managed by the pension fund managers amounted to Rs.8,585 crore.

At present, seven fund houses — LIC Pension Fund, SBI Pension Funds, UTI Retirement Solutions, IDFC Pension Fund Management Company, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund and Reliance Capital Pensions Fund — manage the investment corpus.

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