Pension regulator put in place via ordinance

The government would decide on the permissible level of foreign direct investment in the pension sector shortly. Earlier, the government had indicated that it would go for 100 per cent FDI in the sector.

Top on the agenda of the new regulator — the interim PFRDA has become a statutory body with the issuance of the ordinance — will be to define the number of pension fund managers. PFRDA will regulate the proposed new pension system (NPS) to be effective from January 1 and lay down selection and eligibility criteria for pension fund managers. “The new system will be fully transparent,” Sinha said.

The NPS would mark a shift from the present defined benefit system to a defined contribution system with three standard products broadly categorised as safe, balanced and growth. Under the new system, each employee would have to contribute 10 per cent of his salary to the fund and a similar amount would be contributed by the government.

A number of state governments have already shown their willingnesss to introduce the new system.

All new recruits of the Central government from January 1, 2004 would come under the new system. The government had also earmarked a sum of about Rs 60-70 crore as its own contribution towards the pension scheme in the first year. The calculation had been based on the fact that there would be about 50,000 new Central government recruits with an average salary of Rs 10,000 per month. Presently, the salary and pension bill of the employees of the state and Central governments, put together, constitutes 9.2 per cent of the GDP.

The ordinance would later be replaced by a legislation, most likely in the Budget session of Parliament. The Cabinet, on November 11, had cleared the proposal to set up a separate pension regulator. The role of PFRDA would be similar to IRDA and Sebi in the insurance and capital market sector, respectively.