Allowing FDI forms a part of the amendments to Pension Fund Regulatory and Development Authority (PFRDA) Bill, which was approved by the Union Cabinet.
"The FDI limit in pension will follow FDI limit in insurance. If insurance bill passes with 49 per cent, pension will also be 49 per cent," Finance Minister P Chidambaram told reporters.
The PFRDA Bill was introduced in the Lok Sabha in March 2011, following which the Standing Committee on Finance gave its recommendations in September last year.
Chidambaram said the government has accepted five key recommendations of the standing committee.
The Bill, which would allow part investment of the corpus in stock markets, is likely to be taken up for discussion and passage in the upcoming session of Parliament.
The original Bill had no provisions pertaining to FDI. However, the Standing Committee on Finance, headed by senior BJP leader Yashwant Sinha, had suggested FDI in pension programmes but with a cap of 26 per cent.
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The Bill had failed to get parliamentary approval in the previous term of UPA 1 government due to strong opposition from its then allies, the Left parties.
In June 2012, the Cabinet had deferred a decision on the Bill following opposition from the Trinamool Congress.
The Bill provides powers to the PFRDA to oversee multiple pension funds in the country and also paves way for being a full-time regulator for the sector.
It also provides for establishment of a statutory authority to undertake promotional, developmental and regulatory functions in respect to pension funds.