Govt likely to hike FDI limit in pension sector; bill expected in Monsoon session

The government may hike the foreign direct investment (FDI) limit in the pension sector to up to 100% and a Bill in this regard is expected in the next Parliament session, according to sources.

This would align with the insurance sector, where up to 100% FDI is permitted.

Last year, Parliament approved a Bill to increase the FDI limit in the insurance sector from 74% to 100%.

Prior amendments of the Insurance Act, 1938, were made in 2015, following which the FDI ceiling increased from 49% to 74%.

Amendment to Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013, seeking to raise the FDI limit in the pension sector may come in the Monsoon Session or Winter Session, depending on various approvals, sources said. Currently, the FDI in pension funds is capped at 49%.

Besides, sources said the amendment Bill may contain the separation of the NPS Trust from the PFRDA. The powers, functions, and duties of the NPS Trust, which are currently laid down under the PFRDA (National Pension System Trust) Regulations 2015, may come under a charitable trust or the Companies Act, they said.

The intent behind this is to keep NPS Trust separate from the pension regulator and managed by a competent board of 15 members. Out of this, the majority of members are likely to be from the government as they, including states, are the biggest contributors to the corpus.

The PFRDA was established for promoting and ensuring the orderly growth of the pension sector with sufficient powers over pension funds, the central recordkeeping agency, and other intermediaries. It also safeguards the interests of members.

The National Pension System (NPS) was introduced by the Government of India to replace the defined benefit pension system. NPS was made mandatory for all new recruits to the central government service from January 1, 2004 (except the armed forces in the first stage) and has also been rolled out for all citizens with effect from May 1, 2009, on a voluntary basis.

The government had made a conscious move to shift from the defined benefit, pay-as-you-go pension scheme to a defined contribution pension scheme, NPS, due to rising and unsustainable pension bill. The transition aimed at freeing the limited resources of the government for more productive and socio-economic sectoral development.