Wednesday, September 18, 2013

Recent Bills Part-2

Pension Fund Regulatory and Development Authority (PFRDA) Bill

Background:  Pension Fund Regulatory and Development Authority (PFRDA) Bill was established by the Government of India on 23rd August 2003 to promote old age income security by establishing, developing and regulating pension funds. Pension bill was introduced into the parliament in 2005 for the first time. After nearly a decade, both houses of parliament i.e. Loksabha (4th September) and Rajyasabha (6th September) have finally passed the pension bill which aims to create a regulator for pension sector and extend the coverage of pension benefit to more people.

Why it’s important: At present only 12% of total active workforce are having formal pension and social security plans, while remaining 88% of workforce is having no old age security. This bill will help increase number of people investing in pension plans. It will also open door for 26% of FDI in pension funds.

Key Features:
1.    With the passage of the bill, more citizens of the country will be able to get pension cover. National Pension Scheme (NPS) has a corpus of around Rs. 35,000 crore with around 53 lakh subscribers, including those of 26 state governments.
2.    Subscriber will be able to open an account which will be portable across job changes. Subscriber will also decide the fund manager and schemes in which he is interested to invest his pension wealth. They can also switch schemes and fund managers.
3.    Government of India has also launched Swavalamban plan for people working in unorganized sector.  This scheme will encourage such people to save for their retirement.
4.    This bill will give PFRDA statutory powers. With statutory powers authority can pull up errant pension sector participants and ensure better subscriber protection.

What will be affected?

The bill provides subscribers a wide range of choices to invest their funds, for assured returns by opting for Government Bonds as well as in other funds depending on their capacity to take risk. The new law could help bring in new pension products in the market, thereby giving a choice to customers. Competition could also improve quality of service and returns. If these measures are successful, these could help mobilize substantial long-term funds, which can be used to build infrastructure. 

By, Abhijit Vasagade
SIMSREE Finance Forum