Govt opens up pension sector to 26 per cent FDI

The government on Wednesday approved foreign direct investment of up to 26 per cent in the pension sector, paving the way for the passage of a long-awaited Pension Fund Regulatory and Development Authority (PFRDA) Bill in winter session of Parliament beginning next week.

It, however, retained the flexibility of changing the cap in the bill and also did not provide for any minimum guaranteed return to the subscriber, a vital suggestion made by the Parliamentary standing committee on finance, which vetted the bill and submitted its report to the government in August.

The PFRDA Bill, if passed, will open the country’s lucrative pension sector to foreign players. Now, pension funds of over 10 lakh employees in the country are managed by domestic players such as LIC, State Bank of India, Kotak Mahindra Bank and Reliance Capital, but foreign companies have evinced interest in the country’s pension market.

“The government is of the view that the FDI cap in the pension should be 26 per cent and at par with the insurance sector. However, it would like to retain the flexibility of changing the cap of FDI as and when required and that is why it has not been kept as part of the bill,” a spokesperson said.

The PFRDA Bill was first introduced in Parliament by the United Progressive Alliance government in 2005, but could not see the light of the day because of opposition from Left parties.

The government reintroduced the bill in March this year, which was subsequently sent to the standing committee, headed by former finance minister and senior Bharatiya Janata Party (BJP)  leader Yashwant Sinha, for vetting. The BJP supports the bill.
The government has already allowed 26 per cent FDI in the insurance sector in the country.

 As regards withdrawal, the official said the flexibility of withdrawals from funds under the pension scheme, however, would be tightened. It would be allowed only in case of genuine needs. It would be considered when the need “is critical. It will not be allowed for frivolous reasons.”

The government, however, upheld the standing committee's suggestion to provide greater participation of the employees and stakeholders in the pension advisory committee.

The committee had also suggested that the subscribers to the new pension system should get an assured return on their investments that is at least equal to the interest rate given by the Employees’ Provident Fund Scheme.