In a significant step forward for pension reforms, Finance Minister P Chidambaram has announced that the government will soon notify an interim investment pattern for pension funds, pending the passage of the Pension Fund Regulatory and Development Authority Bill in Parliament.
Meanwhile, two more states -- Delhi and Haryana -- decided to join in, taking the tally of states that have notified similar defined contribution pension systems for their new employees to 19.
These were the major developments at a meeting on pension reforms attended by chief ministers and finance ministers of 18 states in New Delhi on Monday.
The new pension system came into effect in January 2004 for new entrants into central government service. The corpus under it is estimated to have reached Rs 1,500 crore (Rs 15 billion).
The interim investment pattern follows that prescribed for non-government provident funds by permitting investment of up to 5 per cent of the accumulated funds collected under the new pension system in the stock market.
The government also committed itself to providing the option of investing up to 100 per cent of the pension funds in government securities.
The first fund managers will be public sector entities like the Life Insurance Corporation and State Bank of India. A Central Recordkeeping Agency will be set up for central government servants covered by the new pension system.
Speaking to reporters after the meeting, Chidambaram said: "A consensus has emerged that the PFRDA Bill should be passed at the earliest. The concerns expressed would be noted in the amendments to the PFRDA Bill".
Prime Minister Manmohan Singh, who presided over the conference, said: "The pattern will fetch a return superior to that given by the government at present, without compromising the safety factor."
Chidambaram projected the combined pension expenditure of states and the central government at Rs 1,00,101 crore (Rs 1001.01 billion) by 2009-10, with the state's burden as high as Rs 65,081 crore (Rs 650.81 billion). Welcoming the entry of Delhi and Haryana, the finance minister said he expected more states to join once the Bill was passed and the framework made available to them.
However, the Left-ruled states made it clear that they were opposed to the new pension system and the interim model.
Asim Dasgupta, finance minister of West Bengal, told reporters that the system would mean a pay cut of 10 per cent for new recruits, as well as a cut in pension benefits, compared with the defined benefit pension system put in place by his state.
"There is also no guarantee of retirement benefits. The equity market is known to be volatile," he said, adding, "Most importantly, the finance ministry has not considered the buoyancy in VAT collections which are growing at 25 per cent, nor had it indexed for inflation."
Dasgupta also pointed out that the model was not being followed anywhere else in the world. "Chile had introduced it and it proved to be a big failure," he said.
Chidambaram said the Left parties, whose support was crucial for passing the Bill, would continue to be engaged. "We will continue to consult the political parties. The Bill is a necessity," he said.
