Loksabha Passes Pension Bill - Key Points

Loksabha Passes Pension Bill - Key Points

The Lok Sabha today passed the Pension Fund Regulatory and Development Authority Bill 2011, which will open the doors for foreign investment in pension funds. The bill aims to create a regulator for the pension sector and extend the coverage of pension benefits to more people. The Pension Bill has been hanging fire since 2005 when it was first introduced in the Parliament. It was again reintroduced in 2011.

Features of New Pension Bill

1: The Pension Fund Regulatory and Development Authority Bill 2011 will give statutory powers Pension Fund Regulatory and Development Authority (PFRDA) which was established in August 2003 as a regulator for the pension sector.

2:  The bill allows 26% foreign direct investment (FDI) in the pension sector or such percentage as may be approved for the insurance sector, whichever is higher. At least one of the pension fund managers shall be from the public sector.

3:  The subscriber seeking minimum assured returns shall be allowed to opt for investing their funds in such scheme providing minimum assured returns as may be notified by the authority.

4: Withdrawals will be permitted from the individual pension account subject to the conditions, such as, purpose, frequency and limits, as may be specified by the regulations.

5: This bill would also provide subscribers a wide choice to invest their funds including for assured returns by opting for government bonds etc as well as in other funds depending on their capacity to take risk.

6:   The passage of the bill could see pure pension products coming into the market. At present most of the pure pension products available in the market are linked with insurance coverage.

7: In 2005, the government had earlier introduced a pension bill but it lapsed as the Lok Sabha's term got over before the legislation could be passed.

8: The Pension Fund Regulatory and Development Authority Bill 2011 was reintroduced in the Lok Sabha in 2011 by the then finance minister Pranab Mukherjee and it was subsequently referred to a standing committee.

9: PFRDA's National Pension System (NPS) was made mandatory for all new government recruits, except armed forces, joining after January 1, 2004.

10:   The NPS was later opened up to all Indian citizens from 2009 on a voluntary basis.

11:  The NPS allows its subscribers to invest in stock markets but there is a cap on equity investment. The NPS also offers subscribers the option of selecting the fund managers of their choice.

12:   The pension bill could help channelize funds into building long-term assets for the country, including the infrastructure sector. The government wants to ease rules for insurance and pension sectors to allow them to invest in infrastructure, where it is seeking $1 trillion investment till 2017.