Cabinet defers move on pension funds

The Cabinet today postponed a decision on deployment of pension funds in the stock market. The reason: "Red flags shown by several Cabinet ministers," as a minister put it.

"There is a PFRDA (pension) Bill, waiting to be passed," was Finance Minister P Chidambaram's terse comment when he briefed reporters on the Cabinet meeting.

Government sources said a decision was deferred following Prime Minister Manmohan Singh's intervention. This was after the problems with the proposal for investing pension funds in the stock market were discussed and laid out by Foreign Minister Pranab Mukherjee.

Because a Bill sanctioning setting up of a pension authority was pending in Parliament, the Cabinet felt that taking the next step, that is, okaying rules on pension funds investments, was premature.

By putting off a decision, the Cabinet acknowledged tensions between the government and the Left parties on the issue. The differences are over where pension funds, being collected under the New Pension Scheme from January 1, 2004, should be invested for maximum returns.

The government is unwilling to meet the Left demand that it assure guaranteed returns even after the funds are deployed in the stock market.

"Until there is a political agreement, the Cabinet felt it was premature to okay an investment avenue for pension funds." a minister said.

Several ministers told Business Standard that they could not understand why the matter was brought before the Cabinet at this stage. They said the government probably calculated that the PFRDA Bill would be passed in the first week of the winter session.

Today's postponement could sound the death knell of pension reforms for now, unless the pension Bill is passed in this session.

It will not be possible to get Parliament to clear the Bill in the Budget session due to other fiscal preoccupations.

The Left trade unions have been opposing switching to the "defined contributions" concept from that of "defined benefits."

They have also rejected shifting to personal and social insurance schemes from social assistance schemes and the diversion of social security funds from debt (government and other securities) market to equity (share) market.

They are also opposing the opening up of the pension sector for Foreign Direct Investment (FDI), which according to them will allow foreign players to speculate with a huge corpus of employees' savings.

Meanwhile, the Cabinet Committee on Economic Affairs today cleared a clutch of railway projects that will be announced in Parliament. It also cleared proposals relating to relations between India and Jordan and made minor amendments to the composition of the Sixth Pay Commission.

The CECA, for the first and the only time, Chidambaram said, made good a sum of Rs 92.78 crore defalcated from the Siemens' Provident Fund.

The proposed legislation governing the rights of the elderly was referred to a GoM because of complex social issues involved.