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FDI in pension to be capped at 26%

New Delhi, Oct. 15: The government today said the limit on foreign direct investment (FDI) in pension funds would be pegged at 26 per cent as in the case of the insurance sector.

“We are considering 26 per cent FDI in pension funds,” finance secretary D. C. Gupta said on the sidelines of eighth insurance conference organised by the Federation of Indian Chambers of Commerce and Industry.

The decision is expected to act as a damper on global pension majors which have been eager to enter the Indian market.

Pension giants like Principal and Aviva want to go it alone and have been lobbying the government to raise the FDI limit in the insurance sector as well.

The US pension giants are awaiting the final guidelines from the interim Pension Fund Regulatory and Development Authority. A Central Registration Authority will be constituted soon.

Gupta said pension fund managers would be selected through a competitive bidding process. The process is slated to start shortly, he added.

“Fund managers are the key focus. The deductions for new pension scheme will be implemented from January 1, next year,” he added.

The finance secretary said the government employees will be able to choose the investment pattern on their pension fund from safe, balanced and growth schemes depending on the debt and equity exposures.

The government had suggested three different schemes with varying combinations of equity and government debt — from a low 15 per cent exposure to equity right up to 50 per cent. The pensioner will also be entitled to switch over to a different scheme in order to maximise the returns on his investment.

“The new scheme will also be applicable for private players. We expect large number of companies to join after the entire mechanism is in place,” he said.

While the government will make matching contribution for its employees, Gupta said the companies would be free to make any proportion of contribution for its employees.

“The liabilities of the government will increase for the initial few years but will come down in the long term,” he said.

The government will finalise a comprehensive bill by next month for the insurance sector, which has grown by 25 per cent in the last two years.

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