President APJ Abdul Kalam on Wednesday promulgated an Ordinance for the setting up of the Pension Fund Regulatory and Development Authority. The regulator will issue guidelines for the entry of players in the business and will regulate intermediaries.
A finance ministry official said the government was likely to announce tax sops for private sector employees who opted for the scheme.
In the present format, government employees under the scheme are exempt at the contribution and accumulation stage but have to pay tax at maturity.
The pension fund regulator, which is now an interim body under the finance ministry, will have the same powers as the Insurance Regulatory and Development Authority and the Securities and Exchange Board of India. The Securities Appellate Tribunal has been given appellate powers for the pensions sector.
The government proposes to introduce a PFRDA Bill in the Budget session. The authority, which is to be headquartered in Delhi, will consist of a chairperson and five members, of which at least three will be full-time. The chairperson and members are expected to be appointed in the next few days.
On November 11, the Cabinet had cleared a proposal to introduce a Bill for the setting up of a separate pension regulator but it was not introduced in Parliament during the winter session. The Cabinet cleared the Ordinance on October 24.
"Since 40,000 government employees had already joined the scheme and their records had to be kept and savings utilised in a particular manner, a regulatory body had to be formed," UK Sinha, joint secretary in the finance ministry told reporters.
Six state governments had already joined the scheme and if the government did not move fast enough, there could be serious doubts about its willingness to implement the plan, he added.
A finance ministry statement said funds contributed by the 40,000 employees were not earning returns as per the new pension scheme. In the interim, they were being paid at the administered rate of 8 per cent annually, which was not a healthy development, it said.
The statement also noted that the interim regulator did not have powers over pension funds or the central record-keeping agency. The interest of investors could not have been fully protected under the contractual obligations of the pension funds over the interim regulator, the statement said.
Asked about the number of fund managers, Sinha said that though the government policy did not restrict the number of pension fund managers, it was up to the regulator to decide. One of the fund managers would however be from the public sector.
On allowing foreign direct investment in pensions, he said, "That is a policy decision and the government will take a view on it."
Nearly 12 per cent of the government's tax collection is spent on paying pensions. The government's pension liability has been increasing over the years from Rs 5,200 crore in 1993-94 to Rs 23,000 crore in 2003-04.
Almost a dozen global financial powerhouses, including Principal, Merrill Lynch, Templeton, Prudential, Aviva and Standard Life are interested in foraying into the Indian pension fund market.
For the golden years
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