MPs’ panel backs 26% FDI cap for pension

NEW DELHI: The standing committee on finance has recommended a 26% foreign direct investment (FDI) cap for the pension sector in its report on the Pension Regulatory Bill. The foreign investment cap must be legislated so that the executive has no jurisdiction over the matter.

This assumes significance as the Bill has been a major bone of contention between the UPA government and the Left parties—which have opposed many aspects of the proposed legislation.The committee has also refused permission to pension funds to invest abroad.

“If at all the government decides to allow FDI in this sector, the same should be done by bringing forward suitable amendment in the present legislation,” the draft report of the committee said. The total FDI plus NRI and OCB investment should be at par with the insurance sector at 49%.

These recommendations differ from the government’s stated intention to keep FDI and investment issues beyond the purview of the Bill, and to be decided upon by the executive. But it has accepted the government’s contention to permit fund managers to invest up to 50% of the pension funds in the equity market.

However, this will depend on the choices made by the subscribers of the pension fund. The report is expected to be tabled in Parliament in the monsoon session beginning July 25.

The committee has given the go ahead to the government for enacting the Pension Fund Regulatory and Development Authority Bill, 2005, after incorporating the modifications.

The Bill had been introduced in the budget session of Parliament, but had to be referred to the standing committee as the Left parties insisted on it.

The report has also said the pension regulator should give preference in selecting those pension funds, which guarantee a minimum return. “In the matter of selection of pension fund managers, preference be given to such companies which offer guarantees on returns,” the committee said. The Bill should also be amended to statutorily provide at least one public sector fund manager.

The standing committee has also suggested a riskless default option, which will allow pension fund contributors to invest 100% of their monthly contribution in government securities.

To make the new pension system attractive for the unorganised sector, the report has asked for a contributory government pension scheme for them also. “Necessary notification relating to the government’s contribution to the subscription accounts of the unorganised sector workers joining the new pension system, be issued immediately,” the report said.

Other amendments suggested by the committee include giving powers to the six-member regulatory body to supersede the board of directors of any entity and setting up of a committee like the tariff advisory committee in the insurance sector to protect the interests of subscribers.