The Union Cabinet is to shortly consider a proposal to open up the pension sector to foreign direct investment (FDI) and is expected to cap FDI in the pension sector at 26 per cent.The proposal would also include consititution of the Pension Fund Regulatory and Development Authority (PFRDA) through a legislation after it is cleared by the Parliament. The interim PFRDA that has been constituted is through an ordinance of the government.Under the revised Pension Fund Regulatory and Development Bill, the proposal to cap the FDI limit at 26 per cent is based on the recommendations of the standing committee on finance and is on the lines of the insurance sector, where the FDI limit is also capped at 26 per cent.While Finance Minister P. Chidambaram confirmed that ‘‘the Cabinet will take it (the bill) up shortly,’’ sources said the bill was to have been taken up by the Cabinet last week.The bill is expected to come with riders that would disallow premature withdrawals. ‘‘We will not allow premature withdrawal. If it is allowed, then there is a high probability that it would become like the Employees Provident Fund (EPF) where more than 90 per cent of the accounts have a balance of less than Rs 20,000 during maturity,’’ a ministry official said.Unlike other saving schemes, pension funds are long-term savings of individuals, which is why there’s a need to have a lock-in period which would allow fund managers to take a long-term view on their investments and ensure higher returns to the subscribers when they retire.The standing committee also proposed flexibility in withdrawals and a risk-free option allowing the entire corpus to be invested only in safe government securities.On the issue of insurance, feedback from the K.P. Narasimham panel is still awaited and therefore any decision to usher in changes in the insurance sector through a legislation would have to wait. The panel is looking into changes that may be required in investment norms and sufficiency of assets of insurers as envisaged in the Insurance Act.
