Pension Bill - What will it do?

What is the pension bill?

The Pension Fund Regulatory and Development Authority (PFRDA) Bill 2011 is usually referred to as the pension bill. It was introduced in the Lok Sabha on March 24 last year and was subsequently referred to the standing committee on finance for a detailed examination.

he government had introduced a similar bill in 2005 but it had lapsed as the term of the 14th Lok Sabha expired before it could be passed.

What does the bill seek to do?

The government was finding it difficult to manage its rising pension liability because of the defined-benefit system, under which the pension paid to employee was based on their last salary drawn.

In 2004, it shifted to a defined contribution system, which required employee to save for retirement from their earnings.

Towards this end, it set up a new pension system (NPS) for those joining government service after January 2004 and subsequently set up the Interim Pension Fund Regulatory and Development Authority to oversee the scheme that already managed the retirement savings of lakhs of state and central government employees.

The NPS was later extended to private individuals. The government now hopes to establish the NPS as the premier retirement savings scheme.

The pension bill seeks to give statutory or legal powers to the PFRDA, and set the framework for the regulation of pension fund schemes, including the ones being currently offered.

What is the current status?

The standing committee had submitted its report on the bill in August last year. The government has to now take a stand on the recommendations and bring an updated bill. However, it has not been able to build a consensus on the terms of the proposed law within the coalition.

What are the bill's key provisions?

Powers to PFRDA to regulate and develop the sector.

Provides for foreign investments in the sector but has not set a limit.

Detailed frame-work for the management of the NPS, which has two types of accounts, Tier-1 and Tier-2. Withdrawal from Tier-1 accounts will be allowed only on retirement. The NPS has three investment options of varying exposure to equities, govt debt and corporate debt.

What are the committee's main suggestions?

Mention a FDI limit of 26%, same as that for the insurance sector.

Allow emergency withdrawal facility even from Tier-1 account and a 100% government securities option for subscribers.

A minimum guaranteed return.

Why are UPA allies against the bill?

They are objecting to provisions enabling foreign direct investment in the sector and allowing management of pension schemes by private players.