New Pension Scheme : Official amendments to the PFRDA Bill, 2011

The Union Cabinet today approved the introduction of certain official amendments to the Pension Fund Regulatory and Development Authority Bill, 2011. These official amendments have been necessitated in view of the recommendations of the Standing Committee on Finance which has examined the Bill. Based on the recommendations of the Standing Committee on Finance, the Government has decided to accept the following:

1. that the subscriber seeking minimum assured returns shall be allowed to opt for investing his funds in such schemes providing minimum assured returns as may be notified by the Authority;

2. withdrawals not exceeding 25 per cent of the contribution made by subscriber will be permitted from the individual pension account subject to the conditions, such as, purpose, frequency and limits, as may be specified by regulations by the Pension Fund Regulatory Authority and Development Authority (PFRDA)

3. the foreign investment ceiling in the pension sector at 26 per cent or such percentage as may be approved for the Insurance Sector, whichever is higher may be incorporated in the present legislation;

4. 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.

5. the membership of the PFRDA will be confined to professionals having expertise in economics, finance or law only.

The New Pension Scheme (NPS) has been made mandatory for all the Central Government employees (except Armed Forces) entering service with effect from 1.1.2004. 27 State / UT Governments have notified NPS for their employees. NPS has been launched for all citizens of the country including unorgnised sector workers, on voluntary basis, with effect from 1st May, 2009. Further, to encourage people from the unorganised sector to voluntarily save for their retirement, Government has launched the co-contributory pension scheme titled “Swavalamban Scheme” in the Budget of 2010-11. As on 7th September, 2012 the number of subscribers under NPS is 37.45 lakh with a corpus of Rs. 20535.00 crore.

In order to effectively invest and manage such huge funds belonging to a large number of subscribers and to ensure the integrity of the NPS, creation of a statutory PFRDA with well defined powers, duties and responsibilities is considered absolutely necessary and would benefit all NPS subscribers.

The official amendments to the Bill will be moved in the next session of the Parliament.

Background:

The following recommendations of the SCF have not been accepted:

• As regards the recommendation of SCF for compulsory insurance of the funds of subscribers by pension fund managers, a provision has already been made in the PFRDA Bill, to protect the interest of the subscribers by ensuring safety of contribution of subscribers and also by keeping the operational costs in check,

• As regards the selection of pension fund managers in such a manner that one third of all such fund managers are from the public sector, since a provision has already been made in the PFRDA Bill that at least one of the pensions fund shall be from the public sector which sets a floor, the ceiling can be any number based on objective criteria.

The Pension Fund Regulatory and Development Authority Bill, 2005 was initially introduced in the Lok Sabha in March, 2005 to provide for a statutory PFRDA. However, since the Bill and the official amendments, based on the recommendations of the Standing Committee on Finance, could not be considered by the Lok Sabha, and the Bill lapsed on dissolution of the 14th Lok Sabha. The Government had announced in the Budget 2011-12 that the revised PFRDA Bill would be moved in Parliament. Accordingly, the PFRDA Bill, 2011 was introduced in the 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 sought to empower FRDA 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. Based on the recommendations of Standing Committee, a Cabinet Note, to introduce additional recommendations of the Standing committee on Finance was moved on 19th December, 2011. Since the PFRDA Bill, 2011 was deferred in the Winter Session of the Lok Sabha, therefore the Cabinet Note was withdrawn.

PIB