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Pension door left ajar for foreigners

New Delhi, May 11: The Congress-led government today invited bids from eligible pension fund managers to administer the Centre’s new pension scheme for its employees.

Bids were invited from public sector funds to be floated by state-run banks, financial institutions and insurance companies which could have foreign investment of up to 26 per cent.

The Pension Funds Regulatory Development Authority, which today posted the invitation for bids, said, “The selected sponsors shall be required to incorporate the fund as a separate public sector company in which direct and indirect foreign investment should not exceed 26 per cent.”

The last date for submitting the expressions of interest is May 25.

The criteria for the bidders are pretty stiff: at least 51 per cent of these funds will have to be controlled by the state-owned entities and the average assets managed by them should not be less than Rs 10,000 crore for the month of March this year. They will also need to have five years’ experience in managing debt and equity funds.

The move takes into account the Left’s view that pension fund managers should be chosen from the state-run companies. At the same time, it falls in line with the Congress-led government’s policy of opening up the sector to foreign direct investment — a move that the Left is sure to resent.

While CPM leader Nilotpal Basu said his party would have to study the bid documents first, CPI leader Gurudas Dasgupta, who is also a member of the standing committee on finance, said, “This is a backdoor attempt to bring in FDI ... it could lead to eventual privatisation of the sector. However, the interesting point is that they are doing this while retaining the PSU character.”

A bill seeking to allow private players entry into the pension sector and establishing a market regulator continues to hang fire as the Left has made it clear it will block the legislation.

Today’s invitation for the bids, however, bypasses the bill and tries to bring in limited pension reforms by allowing foreign funds to participate in entities which will be set up by state-owned banks, mutual funds and FIs.

The tough eligibility criteria mean that only large financial entities such as the Life Insurance Corporation, the State Bank of India and state-run general insurance companies would be able to set up pension fund management outfits.

Alternatively, smaller state-owned banks and financial institutions could join a consortia formed by larger players. If foreign pension fund managers who manage large funds running into hundreds of billions of dollars join these consortia, the five-year eligibility criteria could be easily met.

A senior LIC official said though the time was short, serious players would put in the bids and “most have already been in talks with possible partners for the job.”

Only central government companies, central public financial institutions and nationalised banks in which the central or state government(s) has at least 51 per cent share can apply.

These fund managers will be able to invest pension fund proceeds in government securities and up to 5 per cent in equities, if the worker opts for this.

The Centre had launched the new pension scheme three years ago.

Under the scheme, the government and its employee each contribute 10 per cent of the monthly salary into a fund. The income from this fund will be used to disburrse pension to the civil servant when he retires. Some Rs 1,500 crore has already accumulated in this fund.

Under the old system, the government bore an undefined pension liability.

Seventeen states have also set up similar funds but the Left-run states have refused to follow this model.

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