Cabinet clears the revised Pension Fund Regulatory and Development Bill 2011

17 Nov 2011 Evaluate

The central cabinet has cleared the revised Pension Fund Regulatory and Development Bill 2011, though it presently does not include a clause on foreign direct investment (FDI) but the government is likely to allow up to 26 per cent FDI in the sensitive pensions sector. The Bill will now be taken up for consideration and passage during the forthcoming winter session of Parliament, starting November 22. The proposed Bill will empower the PFRDA to regulate the National Pension System, as amended from time to time. The Bill also authorises the PFRDA to impose penalties for any violation of the provisions of the legislation, rules, regulations, and so on.

There were some changes made in the original Bill on the basis of the recommendations of the Standing Committee of Finance, but recommendation regarding FDI in the pension sector was ignored. Now it is being said that the provision for allowing FDI in the pensions sector will be created under the rules, which will be framed under the Act, but will not be a part of the Act itself, as had been recommended by the Standing Committee. Instead, foreign investors will be allowed to pick up equity under an executive order and various provisions of the Foreign Exchange Management Act (FEMA) will be applied on this.

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 Bill vows to promote old age income security by establishing, developing and regulating pension funds and to protect the interests of subscribers of various pension fund schemes. 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 but the government’s decision to keep the cap outside the legislation could face opposition. Not only this, the government has also turned down the committee’s recommendation to allow greater flexibility to subscribers of pension schemes for pre-mature withdrawal of funds from their accounts.

However, the government is believed to have accepted the Standing Committee's recommendation on providing the facility of ‘repayable advance' from the pension fund. The Committee had advocated such a facility for subscribers to enable them to meet important commitments. For this purpose, pension subscribers may be allowed to take a repayable advance from their accounts, say after 10-15 years of service.

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