The Rajya Sabha today passed the Pension Fund Regulatory and Development Authority (PFRDA) Bill, which will help extend pension cover to more citizens of the country through PFRDA's New Pension Scheme (NPS).
Here are the salient features of the bill
The main objective of the bill is to help extend pension cover to more citizens of the country through PFRDA's New Pension Scheme (NPS). Currently just 12 percent of the workforce in the country has any formal pension or social security plan.
The passage of the Pension Bill will make Pension Fund Regulatory and Development Authority (PFRDA) a statutory authority. Earlier it had a non-statutory status.
The Pension Bill would also provide subscribers a wide choice to invest their funds, depending on their capacity to take risk. A subscriber seeking minimum assured returns can opt for schemes providing minimum assured returns, as may be notified by the PFRDA.
NPS is a defined contribution scheme and is based on the principle that 'you save while you earn' especially for retirement. NPS has a corpus of around Rs 35,000 crore with around 53 lakh subscribers, including those of 26 state governments.
The Pension Bill will have provisions for withdrawals for limited purposes from Tier-I pension account of NPS.
The provisions of the Pension Bill will not apply to Employees Provident Fund Organisation (EPFO) subscribers. EPFO funds will be continued to be managed by the government.
The Pension Bill allows foreign direct investment in the country's pension sector, the latest attempt by the government to attract more capital flows. Overseas investors can own stakes of up to 26% stake in domestic pension funds, or such percentage as may be approved for the insurance sector, whichever is higher etc. Finance Minister P Chidambaram said the Insurance Laws (Amendment) Bill, which seeks to raise the foreign equity cap in the sector to 49 per cent, will be taken up in the winter session of Parliament. If the insurance bill is passed, foreign investors can hold 49% stake in pension funds. However, at least one of the pension fund managers shall be from the public sector.
As of now, NPS is mandatory for all central government employees (except armed forces) entering service with effect from 01 April 2004. Twenty-six states have already notified NPS for their employees (except West Bengal and Tripura). NPS was opened up for all citizens of the country including unorgnised sector workers, on voluntary basis, with effect from 1 May 2009.
To encourage workers from the unorganised sector to voluntarily save for their retirement via NPS, the government launched the co-contributory pension scheme titled "Swavalamban Scheme" in the Budget of 2010-11. Under the Swavalamban Scheme, the Government of India will contribute a sum of Rs. 1,000 to each eligible NPS subscriber who contributes a minimum of Rs. 1,000 and maximum Rs 12,000 per annum under the Swavalamban Scheme of NPS.
The passage of the pension bill will be a booster for financing the requirements for infrastructure sector. The total investment in infrastructure sectors in the Twelfth Plan (2013-17) is estimated to be Rs 55.7 lakh crore, and pension funds are supposed to contribute at least Rs 1.5 lakh crore, according to estimates. The Pension Bill has been hanging fire since 2005 when it was first introduced in the Parliament. It was again reintroduced in 2011.
