After a delay of nearly a decade, Parliament today passed a key economic reforms legislation, the Pension Bill, that aims to create a regulator for the sector and allows at least 26 per cent FDI.
The Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011, was passed in the Rajya Sabha with 115 MPs voting in favour and 25 against including members form Left parties and TMC. The bill was passed in the Lok Sabha on September 4.
Replying to the debate in Rajya Sabha, Finance Minister P Chidambaram said, "Some of them have legitimate concerns, which we have to address. The bill has travelled for nine years. Let us give the bill the honour that it deserves and pass it."
The bill would make the Pension Fund Regulatory and Development Authority a statutory authority, unlike its present non-statutory status, he said.
The bill provides subscribers a wide choice to invest their funds including for assured returns by opting for Government Bonds as well as in other funds depending on their capacity to take risk, a provision that came from opponents of the legislation.
It pegs the FDI in pension sector at 26 per cent or such percentage as may be approved for the insurance sector, which ever is higher.
Presently, saving for retirement by people is very low in the country. The New Pension System (NPS) aims to promote "saving while you earn" especially for retirement and is mainly for those who have a regular income, Chidambaram said.
He said government had accepted all but one of the recommendations of the Standing Committee on the subject.
On security of funds and returns, he said, "There is enough structure in place in NPS that funds will be managed well and safely. NPS gives better returns than EPS. The returns are more than government bonds. Returns are quite adequate."
The Pension Bill has been hanging fire since 2005 when it was first introduced in Parliament. It was reintroduced in 2011.
Chidambaram said the current system is unsecured. Hence, it was necessary to make the Pension Fund Regulatory and Development Authority (PFRDA) a statutory authority as it is managing the corpus of Rs 35,000 crore belonging to 52.83 lakh subscribers including those of 26 state governments.
"...Rs 35,000 crore should not be used by unstatutory authority...All this bill does is to make non-statutory authority a statutory authority," he said, adding the authority will have powers to penalise.
PFRDA was established by the government in August, 2003.
On members' suggestion to bring down the employee's annual contribution from Rs 6,000, he said, "This is not a large amount. Given the current salary and possibility 7th pay commission in two years, saving of Rs 500 per month is feasible."
He also clarified that if a government employee dies prematurely, his family would get the pension benefits that prevailed prior to 2004.
On a member's suggestion to allow investment of funds in long term 30-40 years bonds, Chidambaram said, "Bond market in India is not well developed. We have bonds for 10 years and 20 years and not beyond this. We will develop the market. I sincerely hope the day will come soon."
On giving tax exemption, he said he will not encourage any law dealing with tax other than the Income Tax Act. He asked the member to wait till Direct Tax Code comes into effect.
According to the bill, there is an incentive for subscribers to join the New Pension Scheme (NPS) as there is provision for withdrawals for limited purposes from Tier-I pension account.
The subscriber seeking minimum assured returns would be allowed to opt for investing funds in such scheme providing minimum assured returns as may be notified by the Authority.
The bill was referred to the Standing Committee twice -- in 2005 and 2011.
The NPS has been made mandatory for all the central government employees (except armed forces) entering service with effect from January 1, 2004. It has been launched for all citizens including unorganised sector workers, on voluntary basis, from May, 2009.
© Copyright PTI. All rights reserved. Republication or redistribution of any PTI content, including by framing or similar means, is expressly prohibited without their prior written consent.