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The Lok Sabha on Wednesday passed the Pension Fund Regulatory & Development Authority (PFRDA) Bill, which seeks to give statutory powers to the interim regulator constituted by an executive order in 2003. The pension reforms Bill has fixed the ceiling on foreign direct investment (FDI) in the sector at 26 per cent — to move in sync with that for the insurance sector.
The Bill passed by the lower house on Wednesday carried some amendments to the one tabled in 2011. The earlier version had kept the option of FDI cap outside the purview of the legislation, as it was believed the FDI cap could be raised through an executive order. However, the revised Bill included it as part of the legislation, following objection from Parliament’s standing committee on finance.
Other amendments include providing subscribers the option of investing in the schemes that provide minimum assured returns.
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On this, during the debate in the Lok Sabha, Bhratruhari Mahtab of the Biju Janata Dal sought amendments to provide that the government give minimum assured returns equivalent to at least the interest rate offered by the Employees’ Provident Fund Organisation (EPFO).
Finance Minister P Chidambaram said it was not possible to give an undertaking that assured returns would be higher (or lower) than the EPFO rates but added the money could be invested in government securities.
The proposed pension fund regime, if it comes into force, will make it mandatory that at least 40 per cent of subscribers’ money is annuitised. It will also allow subscribers to withdraw up to 25 per cent of their contribution in some cases. These cases and the number of withdrawals will be decided by PFRDA.
The proposed law will give statutory powers to PFRDA, which has been regulating the New Pension Scheme (NPS) since January 1, 2004, and had 5.28 million subscribers and a corpus of Rs 34,965 crore as on August 14, 2013. NPS is different from the earlier pension system in that it has defined contributions, while the earlier one had defined benefits.
All central government employees, except armed forces, who joined the services since January 1, 2004, are part of NPS.
So far, 27 states and Union Territories have notified NPS for their employees.
There are now eight fund managers for NPS.
NPS has been launched for all citizens of the country. It also includes unorganised-sector workers, on a voluntary basis, since May 1, 2009.
To encourage people from the unorganised sector to voluntarily save for their retirement, the government also launched the co-contributory pension scheme, called the ‘Swavalamban Scheme’ in Budget 2010-11.
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The PFRDA Bill was originally introduced in 2005 to provide for a statutory PFRDA.
However, that Bill and the official amendments, based on the recommendations of the standing committee, could not be considered by the 14th Lok Sabha and lapsed with the lower House’s dissolution.
