PFRDA Bill Passed

Press Information Bureau
Government of India
Ministry of Finance

04-September-2013 18:31 IST

 

 

 

 

 

 

 

Lok Sabha Passes Pension Fund Regulatory and Development Authority Bill, 2011 with official amendments;
Subscribers Seeking Minimum Assured Returns Allowed to OPT for Investing their Funds in such Scheme Providing Minimum Assured Returns

The Pension Fund Regulatory and Development Authority Bill (PFRDA), 2011 was passed by the Lok Sabha today with official amendments. It was earlier introduced in Lok Sabha on the 24th 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 referred to the Standing Committee on Finance on the 29th March, 2011 for examination and report thereon. The Standing Committee on Finance gave its Report on 30th August, 2011. Some of the key amendments incorporated in the Bill based on the recommendations of the Standing Committee on Finance are as follows:

a) That the subscriber seeking minimum assured returns shall be allowed to opt for investing his funds in such scheme providing minimum assured returns as may be notified by the Authority;

b) 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;

c) The foreign investment in the pension sector at 26% or such percentage as may be approved for the Insurance Sector, whichever is higher;

d) At least one of the pension fund managers shall be from the public sector;

e) To establish a vibrant Pension Advisory Committee with representation from all major stakeholders to advise PFRDA on important matters of framing of regulations under the PFRDA Act.

Beside above, the Bill would make the Pension Fund Regulatory and Development Authority a statutory authority. Presently, it has non-statutory status. The 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.

This Bill would also provide subscribers a wide choice to invest their funds including for assured returns by opting for Government Bonds etc. as well as in 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 1.1.2004. Twenty six (26) States have already notified NPS for their employees. NPS has been launched for all citizens of the country including un-orgnised sector workers, on voluntary basis, with effect from 1st May, 2009. Further, to encourage the people from the un-organised 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 on 14th August, 2013, the number of subscribers under NPS is 52.83 Lakh with a corpus of Rs.34, 965 crore. In order to effectively invest and manage huge funds belonging to a large number of subscribers and to ensure the integrity of NPS, creation of a statutory PFRDA with well defined powers, duties and responsibilities is considered absolutely necessary and would benefit all NPS subscribers.

The PFRDA Bill authorizes the PFRDA to establish a Pension Advisory Committee by notification under Clause 44 of the PFRDA Bill, 2011. The object of the Pension Advisory Committee shall be to advise the Authority on matters relating to the making of the regulations under the PFRDA Act.

Market based returns and wide coverage based on several investment options in the pension sector will build up the confidence in the subscribers, whereas withdrawals for limited purposes from Tier-I pension account will be an incentive for them to join NPS

Decks cleared for passing Pension Bill in Monsoon session

The Government may propose an investment option for assured returns in the New Pension Scheme (NPS). These proposals will be part of the official amendments to the Pension Bill, which is to be moved during the ongoing Monsoon session of Parliament.

“Apart from the existing investment options, the Government may incorporate more options. One will be for assured returns,” a highly-placed source told Business Line. The second option will not give any assured returns, but give maximum safety, he added.

At present, there are three schemes. The first one provides investment, mainly in equity, the second one in Government securities and the third one provides investment in bonds issued by any entity other than Central and State Government. These bonds include rated bonds/securities of public financial institutions and public sector companies, rated municipal bodies/infrastructure bonds and corporate bonds.

Apart from these three options, there is a default option, which is also called Auto Choice, where pension money is invested in equities, Government securities and corporate bonds in proportions which vary with age.

The option related to assured returns is based on suggestions given by the Standing Committee on Finance. The Committee, in its report, said, “It desires that the Government must devise a mechanism to enable subscribers of NPS to be ensured of such a minimum assured/guaranteed returns for their pensions so that they are not put to any disadvantage vis-à-vis other pensioners.”

The Government has also accepted the committee’s views on foreign direct investment. Accordingly, it will be 26 per cent.

Acceptance of these suggestions has won support from the principal opposition party, BJP.

“Since our concerns are taken on board, we have no objection to the Bill, which was initiated during our time,” senior BJP leader and Chairman of the Standing Committee, Yashwant Sinha, told Business Line.

Sinha said there was no understanding between the Centre and the BJP on the Insurance Bill.

“We have given our suggestions on the Bill. Now the ball is in the Government’s court. We will await their suggestions,” he added.

The Left parties said the Centre had not reached out to them on the Bill. “We have not been approached on the Insurance Bill,” said CPI(M) leader Sitaram Yechury. 

Source: Business Line. 

New pension system not better than existing EPS: EPFO

                  The Employees’ Provident Fund Organization (EPFO) says it disagrees with finance ministry’s proposal to encourage its subscribers to shift to New Pension System saying it does not provide better returns than its Employees Pension Scheme-1995.

The retirement fund body has said this in response to a letter written by Financial Services Secretary to Labour Secretary.

“If we take return of EPS as indicative return on the fund managed under EPS then the annualised return for the period May 2009 to May 2013 will be 10.47 per cent, which on the face of it, is higher than the return declared by NPS in its scheme for central government”, EPFO said.

Finance Ministry has written to the Labour Ministry saying: “The subscribers (of EPS) may be given an option to either remain with EPS or join NPS with the same contribution.”

The ministry argued that NPS, which is a self sustaining pension system, could be a good substitute for EPS and would be beneficial for subscribers as they would get decent returns and adequate pension wealth.

Moreover, the Finance Ministry said, “The government would be free from any open ended and financially unsustainable liability of EPS.”

Disagreeing with the contention of the Finance Ministry, EPFO said that EPS scheme provides social security for lower income group people in their old age. In addition, it also provides pension to widow, children and dependents in case of death of the subscriber.

Under the EPS scheme, many interim benefits are provided.

Subscribers can withdraw their contribution towards pension while withdrawing his or her EPF money. There is a lock in period of 15 years in NPS.

Moreover EPS subscribers get bonus of two years on completion of 20 years of service and there is provision of commutation or part withdrawal also. That is not available in NPS.

EPS’s corpus size stood at Rs 1.83 lakh crore as on March 31, 2013. Under the NPS, total corpus was at Rs 29,852 crore as on March 31, 2013 with a subscribers’ base of 47,70,507 members.

EPFO has a subscriber base of over 5 crore and manages PF corpus of Rs 3.7 lakh crore excluding the pension fund of Rs 1.83 lakh crore.

PFRDA Circular updates