Pension funds may have to skip foreign equities

Pension-based mutual funds may be barred from investing in foreign securities, Pension Fund Regulatory and Development Authority (PFRDA) chairman D Swarup said recently.

PFRDA is also against Pension-based of pension funds in derivatives and any other speculative securities, swarup said, adding, that PFRDA will ensure that Pension-based mutual funds invest only in high quality securities.

"Investment in foreign equities and derivatives is ruled out," Swarup said. PFRDA Bill may also have provision for a fourth investment option-a risk-free scheme with investments only in government securities (Gilts), he added.

The other 3 schemes-safe, balanced and growth-may be allowed exposure in equity in the range of 1-50 per cent as it was earlier approved by government.

Under safe option, pension fund managers can invest at least 60 per cent of contribution in low-risk government papers, upto 30 per cent in bonds and 10 per cent in equity.

Under balanced option, exposure in Gilts and bonds will be at least 40 per cent each and upto 20 per cent in equities. In growth option, almost half of the contribution could be invested in equities, at least 25 per cent in government papers and upto 25 per cent in bonds.

The revised PFRDA bill may also allow partial withdrawal of pension funds by an individual.

Pension contribution of central and state government employees would be cegregated into Tier-I and Tier-II funds. Swarup said withdrawal from Tier-I funds will not be allowed but partial withdrawal from Tier-II funds could be permitted.

For unorganised sector, PFRDA will spell out minimum pension contribution in due course of time. Government employees will contribute 10 per cent of their salary for Tier-I fund and the rest would go to Tier-II funds.

Government will make matching contribution for Tier-I only. The revised Bill PFRDA would also incorporate the FDI cap at 26 per cent for pension-based MFs, as it has been recommended by the parliamentary standing committee on finance. These are among the changes that are likely to be carried out in the PFRDA Bill.

The revised Bill will be taken up by Cabinet soon for approval. It will then be debated in parliament before its passage hopefully in the winter session.

While the finance ministry would be busy pushing ahead with the PFRDA Bill, the regulator has decided to come up with the first set of draft regulations on pension by first week of September. "We will come out with the draft regulations within a fortnight. We will invite opinion from the public on the draft norms," Swarup said.

The first set of draft norms will pertain to pension fund managers, Central Record Keeping Agencies (CRAS) and point of presence, he said.

"This will make the process of framing regulations more transparent," Swarup said, adding it may remove apprehensions about the new pension system.

Swarup indicated that only serious players with sound track recobds and wide reach would be allowed to enter the pension arena.