PFRDA Bill likely in next session2 min read . Updated: 29 Jan 2011, 12:02 AM IST
PFRDA Bill likely in next session
PFRDA Bill likely in next session
Legislation to create a statutory pension regulator and allow up to 49% foreign investment in pension fund management companies is likely to be introduced in the forthcoming budget session of Parliament.
The government plans to introduce a pension Bill in the coming Parliament session, a senior finance ministry official said on condition of anonymity. The pension Bill will largely follow the suggestions of a parliamentary standing committee given in 2005, the official added.
The United Progressive Alliance government, in its first term (2004-09), had introduced a Pension Fund Regulatory and Development Authority (PFRDA) Bill in July 2005. The Bill did not specify a cap on foreign investment in pension fund managers.
The PFRDA Bill was later examined by a parliamentary standing committee, which said foreign direct investment in the sector and investment of pension funds abroad should in no way be at variance with that applicable to the insurance sector.
At present, the standing committee of Parliament is examining an insurance Bill, which seeks to enhance foreign investment in companies to 49% from the current cap of 26%.
“In an ideal world, this (PFRDA Bill) should be a legislation that creates an enabling environment," said Gautam Bhardwaj, director of Invest India Economic Foundation, a consultancy specializing in pension reforms.
According to Bhardwaj, an umbrella legislation such as the proposed PFRDA Bill should not specify caps on operational aspects such as foreign investment in companies. These caps could be specified in subordinate legislation to give governments more flexibility to tailor them to the prevailing environment, he said.
The government plans to sound the opposition on the possibility of putting the PFRDA Bill to vote without sending it to a parliamentary standing committee on finance for another round of scrutiny, the finance ministry official cited above said.
The outcome of the government’s plan to avoid sending the PFRDA Bill to the standing committee will be known early next month as representatives of government and the opposition are to meet to find a way to ensure the smooth functioning of Parliament.
Currently, the pension sector has its own regulator, PFRDA, which started a market for pension products in 2008.
Unlike the other financial services regulators such as the Reserve Bank of India, PFRDA does not have statutory status. Consequently, PFRDA does not have the quasi-judicial powers of other regulators.
The drawback of not having statutory powers is that if one of the entities PFRDA regulates violates norms, it cannot impose punishment. PFRDA would have to use the judicial system to punish a violation by an entity it regulates.
The standing committee, which examined the 2005 PFRDA Bill, had made a few other recommendations that may be incorporated in the new legislation.
The committee had recommended the PFRDA Bill empower the watchdog body to appoint an administrator to run a regulated entity when events left it with no other choice.
The regulator should also be entrusted with responsibility for protecting the funds of investors and have a say in fund managers’ operating costs to get the best deal for subscribers, the committee recommended.