The cabinet on Wednesday cleared the pension bill but decided not to limit foreign direct investment in the sector, retaining the flexibility to prescribe or change limit through an executive decision.
The government will place the Pension Fund Regulatory and Development Authority Bill 2011 in the winter session of Parliament, beginning next week.
Once approved, it will allow pension fund managers to attract foreign capital and expertise in the management of retirement savings.
"The government is of the view that the FDI cap in the pension should be at 26% on a par with the insurance sector... However, it would like to retain the flexibility of changing the cap and that is why it has not been kept as part of the bill," said an official after the cabinet meeting, chaired by Prime Minister Manmohan Singh.
The parliamentary standing committee on finance, headed by senior BJP leader and former finance minister Yashwant Sinha, wanted the government to specify the FDI cap in the bill itself.
But the government was reluctant to specify the FDI limit because of the difficulty it is facing in getting the insurance law amended to raise the FDI from 26% to 49%. The Insurance (Amendment) Bill has been pending since 2008.
The government has also not agreed to the suggestion of an assured return and greater flexibility to subscribers to withdraw funds from their accounts.
The interim pension authority currently administers the National Pension Scheme (NPS), which manages retirement savings of central government employees who joined service after January 2004. Subsequently, the scheme was opened to employees of state governments and private individuals.
The scheme has a corpus of about 10,000 crore and over 24 lakh subscribers as of now.
The authority was functioning under an executive order, lacking statutory backing enjoyed by the other financial regulators.
The PFRDA Bill provides for establishment of a statutory authority to undertake promotional, developmental and regulatory functions for pension funds.
"This is a good beginning," said Gautam Bharadwaj, director, Invest India Economic Foundation.
PFRDA chairman, however, said it was too early to comment. "We will only talk once the bill gets passed," said PFRDA chairman Yogesh Agarwal.
The bill will pave the way for social security through efficient intermediation of household savings. But analysts say more steps need to be taken to make the sector attractive enough to foreign players.
"This step will not be able to solve any of the problems in the sector. The government needs to overhaul the NPS to make it more attractive for private players", said Value Research CEO Dhirendra Kumar.
The law could also redefine the jurisdiction of financial sector regulators as it empowers the interim pension watchdog to regulate all pension products, including those offered by entities under other financial sector regulators.
The government will place the Pension Fund Regulatory and Development Authority Bill 2011 in the winter session of Parliament, beginning next week.
Once approved, it will allow pension fund managers to attract foreign capital and expertise in the management of retirement savings.
"The government is of the view that the FDI cap in the pension should be at 26% on a par with the insurance sector... However, it would like to retain the flexibility of changing the cap and that is why it has not been kept as part of the bill," said an official after the cabinet meeting, chaired by Prime Minister Manmohan Singh.
The parliamentary standing committee on finance, headed by senior BJP leader and former finance minister Yashwant Sinha, wanted the government to specify the FDI cap in the bill itself.
But the government was reluctant to specify the FDI limit because of the difficulty it is facing in getting the insurance law amended to raise the FDI from 26% to 49%. The Insurance (Amendment) Bill has been pending since 2008.
The government has also not agreed to the suggestion of an assured return and greater flexibility to subscribers to withdraw funds from their accounts.
The interim pension authority currently administers the National Pension Scheme (NPS), which manages retirement savings of central government employees who joined service after January 2004. Subsequently, the scheme was opened to employees of state governments and private individuals.
The scheme has a corpus of about 10,000 crore and over 24 lakh subscribers as of now.
The authority was functioning under an executive order, lacking statutory backing enjoyed by the other financial regulators.
The PFRDA Bill provides for establishment of a statutory authority to undertake promotional, developmental and regulatory functions for pension funds.
"This is a good beginning," said Gautam Bharadwaj, director, Invest India Economic Foundation.
PFRDA chairman, however, said it was too early to comment. "We will only talk once the bill gets passed," said PFRDA chairman Yogesh Agarwal.
The bill will pave the way for social security through efficient intermediation of household savings. But analysts say more steps need to be taken to make the sector attractive enough to foreign players.
"This step will not be able to solve any of the problems in the sector. The government needs to overhaul the NPS to make it more attractive for private players", said Value Research CEO Dhirendra Kumar.
The law could also redefine the jurisdiction of financial sector regulators as it empowers the interim pension watchdog to regulate all pension products, including those offered by entities under other financial sector regulators.
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