PM asks states to be flexi on PFRDA
By PTI |
Highlights
NEW DELHI: Prime Minister Manmohan Singh on Monday asked the states to cooperate with the Centre's proposal to allow investing a part of pension funds in stock markets and other options such as bonds.
"The suggestion is being considered is that pending a resolution of all issues relating to the PFRDA Bill, these accumulated funds may be allowed to be invested in accordance with the investment pattern prescribed for non-government provident funds," Singh said in his address to the Chief Ministers' Conference on Pension Reforms.
The Prime Minister's statement comes at a time when the Left parties are opposing the Pensions Reforms Bill. Singh said the pattern permitted for non-government provident funds would fetch a superior return for New Pension System (NPS) funds than that given by the government at present without compromising on the safety factor.
As per this pattern, five per cent of the funds will be invested in shares of companies that have an investment grade debt rating from at least two rating agencies.
Other broad forms of investment include 25 per cent in central government securities, 15 per cent in state government securities, 25 per cent in bonds and securities of public financial institutions and 30 per cent in any of these three categories.
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The Central government employees recruited since January 1, 2004, are under NPS, which is based on a defined contribution system as against defined benefit of the old pension system. Seventeen state governments have also joined NPS. The contributions of these new employees have accumulated in the Public Account, which fetches a fixed annual return of 8 per cent only.The Prime Minister said at present only 11 per cent of the workforce is covered under some form of pension scheme and workers in the unorganised sector, constituting 90 per cent of the labour force, need a comprehensive pension system which they can subscribe to.
"India will face huge challenges in future due to the level and speed of ageing of population, he said, adding that a large labour force in unorganised sector functions without any option for their old age.
The rising pension bill at all levels of government would be increasingly difficult to finance in future, given the other demand that are there on state resources particularly for enhancing expenditure on essential social sectors such as health and education, he said.
Singh said, while the government has launched various social welfare schemes like NREGP, Indira Aawas Yojana, the National Rural Health Mission, it does not have a comprehensive social safety-net focusing on old age income security covering the bulk of India's population.
However, Asim Dasgupta, the Finance Minister of left-ruled West Bengal did not seem to be convinced by the Prime Minister's arguments.
In a written speech circulated to media, Dasgupta said, with the cut in salary and pension of employees, absence of government guarantee for retirement benefits in NPS and the distinct possibility of a sustainable Defined Benefit Pension System, the state is not in a position to accept the NPS.
"We strongly urge that a more in-depth factual and analytical discussion is essential before taking further step toward NPS," Dasgupta said. The Prime Minister said one major objective of the Pension Fund Regulatory and Development Authority (PFRDA) Bill is to put in place the architecture and the delivery mechanism for pension schemes.
"It is my belief that there is a lot to be gained by moving forward and allowing a multiplicity of pension products delivered by a variety of agencies, to be offered to our people," he said.
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The PFRDA Bill is pending in Parliament due to stiff opposition from the Left parties. The Standing Committee on Finance has recommended the Bill to parliament, subject to certain modifications and amendments.
The Finance Minister P Chidambaram said taking into account the recommendations of the Committee, the Centre has proposed that the Bill maybe passed with essential features like, freedom for individuals to choose their investment portfolio and management of the funds by professional bodies.
Pension reforms have assumed importance as both the Centre and state governments are facing the rising bill under this head. The total expenditure of the Central government on pension payments to its retired employees has gone up from Rs 3,272 crore in 1990-91 to Rs 28,963 crore in 2005-06.
The importance of the conference could be gauged from the fact that besides the Prime Minister and Finance Minister, External Affairs Minister Pranab Mukherjee, Home Minister Shivraj Patil, Defence Minister A K Anthony and Labour Minister Oscar Fernandes were present in the discussions with state representatives.
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