New Delhi/Calcutta, Nov. 16: The Cabinet today allowed 26 per cent foreign direct investment in the pension sector but refused any assured return to subscribers in the proposed pension regulatory bill.
However, the government will not mention any FDI cap in the legislation as it wants to retain the flexibility to later change it through an executive order, a government official said.
The parliamentary standing committee on finance headed by BJP leader and former finance minister Yashwant Sinha had suggested that a 26 per cent cap be mentioned in the legislation.
The governments decision to keep the cap outside the legislation could face opposition from the BJP in Parliament.
The government has also turned down the committees recommendation to allow greater flexibility to subscribers of pension schemes for pre-mature withdrawal of funds from their accounts.
The flexibility of withdrawals from funds under the pension scheme, however, would be tightened. It would be allowed only in case of genuine needs... It will not be allowed for frivolous reasons, the official said.
The Left parties had opposed the proposal to open up the pension sector to FDI when the bill was first introduced in Parliament in 2005.
The government reintroduced the Pension Fund Regulatory and Development Authority (PFRDA) Bill in March this year, after which it was sent to a committee on finance. The panel submitted its report in August.
The standing committee had said the pension fund managers cannot be compared with insurance entities in the financial sector and, therefore, the investment policy must be spelt out in the bill itself.
The government is in favour of spelling out the policy for pension sector intermediaries.
The standing committee also wants the government to provide a minimum guaranteed return to subscribers like in the Employees Provident Fund.
However, the official said, The proposed legislation will not provide assured returns to the subscribers of pension schemes.
At present, besides the government-run New Pension Scheme, only life insurance companies can offer a pension fund. And 26 per cent FDI is already allowed in life insurance.
Rolled out in 2004, there are seven fund managers (LIC Pension Fund, SBI Pension Fund, UTI Retirement Fund, IDFC Pension Fund, ICICI Pension Fund, Kotak Mahindra Pension Fund and Reliance Capital Pension Fund) managing the Rs 10,773 crore corpus under NPS. These fund managers generated an annual compounded return of between 4.91 per cent and 17.85 per cent till March 2011.
The governments decision today would allow the seven funds managers to induct foreign partners. However, the parents of the seven pension fund managers already have mutual fund businesses where they have foreign partners.
Todays decision by the Cabinet, therefore, only lays the ground rule and nothing material beyond that.
Even, NPS subscribers will have to compulsorily buy annuity or the pension income from one of the life insurance companies with the accumulated money under the government scheme. Only life insurers in India can sell annuities.