PENSION PRODUCTS: PANEL FOR GUARANTEED RETURNS

A parliamentary standing committee has favoured offering minimum guaranteed returns to subscribers of the New Pension System (NPS) and recommended a 26% foreign direct investment (FDI) cap in the pension sector through a legislative process.

The parliamentary standing committee on finance which submitted its report on the Pension Fund Regulatory and Development Authority (PFRDA) Bill on Tuesday, said that "as any effective pension scheme needs to be underpinned by stability of returns and reasonable post retirement incomes, it is imperative that the government should provide for minimum guaranteed return and not the mere camouflage of market-based guarantee."

The committee, headed by former finance minister and Bharatiya Janata Party (BJP) leader Yashwant Sinha, recommended that the minimum rate of return on the contributions to the pension fund of the employee should not be less than the rate of interest on the Employees Provident Fund scheme. In the absence of such a guarantee, the NPS cannot justifiably claim to provide old age income security," it said.

The government had introduced the Bill in the Lok Sabha in March.The PFRDA is yet to get statutory powers and the interim PFRDA is functioning since 2003 through an executive order.

The NPS was made mandatory for all new recruits to the government except armed forces with effect from January 1, 2004. It was opened to all citizens of India from May 1, 2009 on a voluntary basis.

As many as 27 states governments have notified and joined the NPS for their employees. As of now, its subscriber base has crossed 1.1 million with a corpus approaching Rs7,000 crore. The government is of the view that FDI in the pension sector should be capped at 26%, but the standing committee said the ceiling should be specified in the legislation itself and not through an executive order
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- Hindustan Times, New Delhi, August 31, 2011