Soon, non-salaried individuals will have the option to save for their retirement with authorised fund managers.
The government has asked the Pension Fund Regulatory & Development Authority (PFRDA) to open the retirement scheme — which has so far been confined to central government employees — to the self-employed and those in the unorganised sector.
“We have asked PFRDA to frame a scheme (that will be applicable) for any citizen,” Finance Minister P Chidambaram said at a function organised by the National Securities & Depositories Ltd (NSDL) to launch record-keeping services for the pension business.
At present, non-salaried people do not have any scheme to save for their retirement needs. For those who are members of the Employees Provident Fund Organisation, there is the option of the Employees Pension Scheme, which is facing a deficit of over Rs 20,000 crore.
The non-salaried also have the option of buying annuity schemes from insurance companies that earn them a monthly pension.
Under the new scheme, subscribers will be able to receive 40 per cent of the amount in hand once they retire. The remaining 60 per cent will be invested in annuities offered by insurance companies that will earn them a monthly income.
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Subscribers to this scheme will have to option to change their fund managers and the investment pattern during the course of the pension scheme.
| MAKING ALLOWANCES |
| * Proposal to universalise the scheme suggested by pension fund regulator D Swarup around 12 months ago |
| * The proposal has been discussed with the law ministry which has concurred with the finance ministry that statutory backing may not be essential |
| * Fund managers to offer retirement plans by signing agreements with PFRDA. |
| * Scheme to allow subscribers to receive 40% of savings in hand once they retire & remaining 60% in monthly income-earning annuities |
| * Subscribers to have the option to change fund managers and investment pattern during the course of the scheme |
| * PFRDA seeks level playing filed on taxation. Wants exemption at the time of withdrawal |
The government was earlier planning to expand the scheme to self-employed people after the passage of the PFRDA Bill that will provide legal backing to the regulator and enable it to notify investment and other norms.
Though the Bill has been approved by the Parliamentary standing committee, opposition from the Left parties had meant that the Centre has been unable to introduce it in Parliament, after incorporating the changes that were suggested.
Although the regulator is still working on the blueprint for the scheme for individuals, the thinking within government is to allow fund managers to offer retirement plans by signing agreements with PFRDA.
The agreement will prescribe the investment norms, depending on the scheme that individuals opt for, and any deviation from the guidelines will attract stiff penalties, said an official associated with the development.
Sources added that the scheme, first suggested by PFRDA Chairman D Swarup around 12 months ago, has been discussed with the law ministry which has concurred with the finance ministry’s assessment that a statutory backing may not be essential to kick off the scheme.
For Central government employees, PFRDA has signed agreements with the three fund managers — State Bank of India, Life Insurance Corporation and UTI — that allow up to 15 per cent of the corpus to be invested in equities. Once the scheme is opened up for individuals, more investment options are likely to be thrown in, including a complete debt scheme.
The default option could be a scheme where the investment profile will change from equity-biased to debt-focussed as a subscriber to the scheme ages.
At present, fund managers are managing the Centre’s corpus of Rs 1,500 crore, which could touch Rs 4,000 crore over the next few months as the 19 states sign agreements with NSDL (the central recordkeeping agency), the three designated fund managers, Stock Holding Corporation of India (the custodian) and a trustee bank. Once the scheme is approved by the government, the regulator may throw open the business to more fund managers.
In addition to providing long-term savings and a social security net, the fund managers will emerge as some of the largest domestic institutional investors in the equity as well as the debt markets in the coming years.
The regulator has also approached the finance ministry to review the tax benefits available for investment in pension schemes. At present, investment in pension is taxed at the time of withdrawal while EPFO and many small savings schemes are exempted from taxes at the time of investment, during accumulation and at the time of withdrawal. “That’s an issue that needs to be addressed,” Swarup said at the NSDL function.
The need for a new law arose on several counts including the fact that the number of companies has expanded from 30,000 in 1956 to over 700,000 at last count.