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Panel for 26% FDI in pension

July 26, 2005 16:31 IST

A Parliamentary panel that went into a Bill to create a pension fund regulator has favoured 26 per cent FDI in the sector, but found many lacunae in the legislation, including lack of flexibility in early withdrawal of money by subscribers of a new pension scheme.

The Standing Committee of Finance that went into the Pension Fund Regulatory and Development Authority (PFRDA) Bill, said: "An element of flexibility should be provided under new pension system to enable subscribers to withdraw money to meet unforeseen and urgent expenses."

The report, tabled in both houses of Parliament, with four set of dissenting notes including one from CPI leader Gurudas Das Gupta, wanted total ban on FDI and favoured continuation of the defined benefit pension system instead of the new defined contribution scheme introduced in January 2005.

However, the committee, headed by the BJP leader B C Khanduri, felt that any decision relating to permitting FDI in pension "should in be in no way in variance with provisions applicable to the insurance sector."

As per the norms in the insurance sector, FDI is allowed up to 26 per cent, which is proposed to be raised to 49 per cent by amending the IRDA Act.

In a bid to provide a risk-free returns to subscribers, the committee suggested that option of 100 per cent investment in government securities be made available and suitable changes brought about in the PFRDA Bill.

Though the committee wanted pension funds to offer risk-free options, it suggested that subscribers should also have sufficient options of choosing funds and schemes that may fetch high returns on the basis of market performance.

Pitching for flexibility in withdrawal, it recommended that subscribers be allowed to take one repayable advance from their accounts upon completion of 15 years of service and also permanently withdraw up to 50 per cent of the his contribution after 25 years of service to meet exigencies.

The suggestion comes in the wake of the proposed PFRDA Bill totally ignoring early withdrawals.

The committee also wanted safeguards to protect the interests of subscribers by suitably inserting relevant provisions in the proposed PFRDA Bill.

With a view to protect subscribers' interests, the committee recommended that representatives of employees association and subscribers should be co-opted in the special committees to be set up by the authority.

Regarding the coverage of the unorganised sector, the new pension scheme offers an option for workforce to join but it desired that government must bring forward a comprehensive legislation for the sector inclusive of pension coverage.

The committee wanted PFRDA Bill to spell out in clear terms the pre-requisites relating to capital structure of the pension fund managers.

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