Govt may allow foreign investment in pension funds

Govt may allow foreign investment in pension funds

New Delhi: India may allow foreign investment of up to 26% in the pension sector, giving global players access to a roughly $2 billion pool of assets that is expected to grow quickly as more people join the organised workforce.

The recommendation by a parliamentary panel on a pending pension bill is the latest fillip to economic reforms that have stalled as the government was paralysed by a spate of scandals.

New Delhi has been taking steps of late to make the country more investment friendly, backing in principle foreign direct investment in multi-brand retail, a reform that has been delayed for years.

Some of the reform measures, including a proposal to lift the cap on foreign holdings in insurance companies to 49% from 26%, require parliamentary approval.

Now, pension funds of over a million employees in India are managed by IDFC, State Bank of India, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Reliance Capital and Life Insurance Corporation of India.

Foreign firms have been lobbying for liberalising access to the pension and insurance sectors in a fast-growing country where most of the 120 crore population lack such investments.

Most of the 23 life insurance players in India, nearly all of which have a foreign partner holding a 26% stake, are eager to enter the pension fund market, analysts said.

Global players holding stakes in Indian operators include Aviva, AIG and AXA.

The pension and the insurance bills are currently being examined by a parliamentary panel, headed by Yashwant Sinha, former finance minister and a leader of the main opposition Bharatiya Janata Party.

The panel has also recommended that the returns from a new government pension scheme -- subscribed by employees of the federal and state governments -- should fetch a minimum return at par with the state-run social security fund, the Employees Provident Fund (EPF).

The EPF, covered by separate law, manages more than $50 billion worth of assets for around 4 crore employees and paid a 9.5% return in FY11.