Specify 26% FDI cap in pension funds in Bill

Parliamentary Standing Committee on finance for minimum guaranteed return on NPS.

The Parliamentary Standing Committee (PSC) on finance has asked the government to specify a 26 per cent cap on foreign direct investment (FDI) in pension funds in the Pension Fund Regulatory and Development Authority (PFRDA) Bill,instead of leaving the decision on an executive notification.

The PSC has opined that as pension fund managers holding the stake of old age income security are not comparable with other institutions such as banks in the financial sector,it is appropriate that the ceiling be stated in the Bill.

Further,to protect subscribers interests the committee has suggested that the government develop a mechanism to ensure a minimum guaranteed return to National Pension System (NPS) subscribers so that they are not at a disadvantage compared to other pension schemes. The rate of return should not be less than the interest offered on employees provident fund scheme,it has said. In case of any shortfall on minimum returns the government should cover the gap making allocations for the same under the Budget. It has also suggested the government to allow subscribers to take a repayable advance from their account after about 10-15 years of service.

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In the broader interest of the sector,the committee has suggested that at least one third of the pension fund managers should be selected from the public sector given the uncertainty and volatility of the financial sector in the current economic scenario.

The committee has also raised questions over the dismal performance of the NPS citing a subscriber base of just 23.56 lakh and a corpus of Rs 9,924 crore as on July 16,2011. As far as the Swavalamban scheme for unorganised sector is concerned,the base is limited to 3 lakh subscribers while 51,000 alone have joined the voluntary part of NPS. The committee has thus asked the government to make serious efforts in order to extend it to both public and private sector instead of just focusing on central government employees.

It has also said that employees be given greater flexibility in choosing the model and the fund manager along with the freedom to exercise this option periodically or annually. The creation of a Pension Advisory Committee has also been recommended to advise the pension regulator for framing guidelines for the sector. Representatives of stakeholders should be appointed as members to the PAC,the PSC report says.

Safeguards

* Standing Committee says as pension fund managers holding stake of old age income security are not comparable with other institutions,it is appropriate that the ceiling be stated in the Bill

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* Committee suggests at least one third of pension fund managers be selected from the public sector

* Raises questions over dismal performance of the NPS citing a subscriber base of just 23.56 lakh and a corpus of Rs 9,924 crore as on July 16,2011