The Union Cabinet's decision to give statutory status to the Pension Fund Regulatory and Development Authority (PFRDA), though belated, is welcome. In 2003, the NDA government set up the PFRDA through an executive order. That it has taken eight years for the government to take that step does not in any way diminish the importance of the reform itself. For instance, the measure will enable millions of people, who are now without a worthwhile security net in the form of retirement savings options, to get the benefit of an organised, regulated pension. The PFRDA bill is expected to come before Parliament in the winter session starting next week. But then, political opposition to the bill remains. Specifically, the government has drawn flak for rejecting two of the recommendations made by the Parliamentary Standing Committee on Finance. While the government gave its nod for foreign direct investment (FDI) in the pension sector to an extent of 26 per cent, the bill makes no mention of the sectoral cap although the standing committee recommended it. Instead, the government has chosen to notify the cap under the rules to be framed under the proposed legislation. This is evidently because the government wants to have some flexibility in the matter of raising the cap to 49 per cent, if and when it decides to do so. After all, changing the rules is much easier than amending the Act for the simple reason that the latter requires Parliament's approval.
Obviously, the government's experience with the insurance sector — where there has been no political consensus on changing the cap on FDI that has been built into the relevant statute — has weighed with it in going for this hassle-free non-legislative route. The government is on an even stronger ground in not accepting the recommendation for a guaranteed minimum return to pension fund subscribers. The standing committee had wanted pension fund managers to be appointed on the basis of their commitment to generate minimum returns. No prudent investment policy would insist on guaranteed returns from stock market investments. Indeed, mutual fund subscribers are warned that investments in stock market instruments are subject to market risk. For pension fund subscribers, the time horizon is even longer and the authorities will have to go the extra mile to educate them. Subscribers must be made familiar with the risks and rewards that go with their chosen pension plan, whether the investment is in debt or equity, or in a combination of the two. Once the IPRDA bill becomes law, the New Pension Scheme, which has not made a mark so far, will get a big boost. The opening up of the pension sector will make available large, long-dated funds for infrastructure.
Obviously, the government's experience with the insurance sector — where there has been no political consensus on changing the cap on FDI that has been built into the relevant statute — has weighed with it in going for this hassle-free non-legislative route. The government is on an even stronger ground in not accepting the recommendation for a guaranteed minimum return to pension fund subscribers. The standing committee had wanted pension fund managers to be appointed on the basis of their commitment to generate minimum returns. No prudent investment policy would insist on guaranteed returns from stock market investments. Indeed, mutual fund subscribers are warned that investments in stock market instruments are subject to market risk. For pension fund subscribers, the time horizon is even longer and the authorities will have to go the extra mile to educate them. Subscribers must be made familiar with the risks and rewards that go with their chosen pension plan, whether the investment is in debt or equity, or in a combination of the two. Once the IPRDA bill becomes law, the New Pension Scheme, which has not made a mark so far, will get a big boost. The opening up of the pension sector will make available large, long-dated funds for infrastructure.
