India is reportedly planning to increase the foreign direct investment (FDI) limit in its pension sector to 100 per cent, a move that could significantly boost capital inflow and align it with the recently liberalised insurance sector.
Illustration: Dominic Xavier/Rediff
Key Points
- The Indian government is exploring a hike in the foreign direct investment (FDI) limit for the pension sector to 100 per cent, mirroring the insurance sector’s policy.
- A Bill to amend the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013, is anticipated in either the Monsoon or Winter Session of Parliament.
- Currently, FDI in the pension fund sector is capped at 49 per cent, and this proposed change aims to attract more foreign capital.
- The amendment Bill may also include provisions for separating the NPS Trust from the PFRDA, potentially placing it under a charitable trust or the Companies Act.
- The National Pension System (NPS) was introduced to replace the defined benefit pension system, aiming to free up government resources for development.
The government may hike the foreign direct investment (FDI) limit in the pension sector to up to 100 per cent and a Bill in this regard is expected in the next Parliament session, according to sources.
This would align with the insurance sector where up to 100 per cent FDI is permitted.
Aligning with Insurance Sector Norms
Last year, Parliament approved a Bill to increase the FDI limit in the insurance sector from 74 per cent to 100 per cent.
Prior amendments of the Insurance Act, 1938 was done in 2015 following which the FDI ceiling increased from 49 per cent to 74 per cent.
Amendment to Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013 seeking to raise the FDI limit in the pension sector may come in the Monsoon Session or Winter Session depending on various approvals, sources said.
Currently, the FDI in pension fund is capped at 49 per cent.
Proposed Changes to NPS Trust
Besides, sources said the amendment Bill may contain separation of NPS Trust from the PFRDA.
The powers, functions and duties of the NPS Trust, which are currently laid down under the PFRDA (National Pension System Trust) Regulations 2015, may come under a charitable trust or the Companies Act, they said.
The intent behind this is to keep NPS Trust separate from the pension regulator and managed competent board of 15 members.
Out of this, the majority of members are likely to be from the government as they, including states, are the biggest contributor to the corpus.
Role of PFRDA and NPS
The PFRDA was established for promoting and ensuring the orderly growth of the pension sector with sufficient powers over pension funds, the central recordkeeping agency and other intermediaries.
It also safeguards the interest of members.
The National Pension System (NPS) was introduced by the Government of India to replace the defined benefit pension system.
NPS was made mandatory for all new recruits to the central government service from January 1, 2004, (except the armed forces in the first stage) and has also been rolled out for all citizens with effect from May 1, 2009, on voluntary basis.
The government had made a conscious move to shift from the defined benefit, pay-as-you-go pension scheme to defined contribution pension scheme, NPS, due to rising and unsustainable pension bill.
The transition aimed at freeing the limited resources of the government for more productive and socio-economic sectoral development.
