Pension bill gives subscribers option to invest in assured return schemes

The Lok Sabha on Wednesday passed the Pension Fund Regulatory and Development Authority Bill, 2011 incorporating official amendments to allow subscribers to opt for investing in schemes that provide minimum assured returns.

The Pension Fund Regulatory and Development Authority Bill (PFRDA), 2011 was earlier introduced in the Lok Sabha on  24 March 2011 to provide for a statutory regulatory body, the Pension Fund Regulatory and Development Authority (PFRDA) under the provisions of the Bill.

The legislation seeks to empower PFRDA to regulate the New Pension System (NPS).

The PFRDA Bill, 2011 was since referred to the standing committee on finance for a review and the standing committee's report presented on 30 August, 2011 suggesting some key amendments, which have been incorporated in the amended bill.

The standing committee's recommendations include:

• The subscriber seeking minimum assured returns should be allowed to opt for investing his funds in such scheme providing minimum assured returns as may be notified by the Authority;
• Withdrawals will be permitted from the individual pension account subject to the conditions, such as, purpose, frequency and limits, as may be specified by the regulations;
• Foreign investment in the pension sector at 26 per cent or such percentage as may be approved for the Insurance sector, whichever is higher;
• At least one of the pension fund managers should be from the public sector; and
• A vibrant Pension Advisory Committee should be established with representation from all major stakeholders to advise PFRDA on important matters of framing of regulations under the PFRDA Act.

Beside, the bill would make the Pension Fund Regulatory and Development Authority a statutory authority.

At present, it has non-statutory status.

The National Pension Scheme (NPS) is based on the principle that 'you save while you earn' especially for retirement and is mainly for those who have a regular income.

Subscribers can opt to invest their funds in government bonds, assured return schemes or other funds depending on their capacity to take risk.

The NPS has been made mandatory for all the central government employees (except armed forces) entering service with effect from 1 January 2004.

Twenty six states have already notified NPS for their employees. The scheme is applicable to all citizens of the country, including those in the unorgnised sector, on voluntary basis, with effect from 1 May 2009.

Further, to encourage the people from the unorganised sector to voluntarily save for their retirement, the government has launched the co-contributory pension scheme titled `Swavalamban Scheme' in the Budget of 2010-11.

As of 14 August 2013, the number of subscribers under NPS stood at 5.28 million, with a corpus of Rs34,965 crore.

The creation of a statutory PFRDA with well defined powers, duties and responsibilities is considered absolutely necessary to monitor and supervise that the NPS with its huge subscriber base and expanding capital is well administered and to ensure that it benefits all subscribers while ensuring market-based returns.