The long-pending Pension Bill, a key economic legislation assuring minimum returns to subscribers, was approved by the Lok Sabha on Wednesday, with the government saying it is based on the principle that "you save while you earn".
The Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011, provides for market based returns and wide coverage based on several investment options in the pension sector with an aim to building confidence in the subscribers.
It will have provision for withdrawals for limited purposes from Tier-I pension account, an incentive for subscribers to join the New Pension Scheme (NPS).
Replying to a brief debate, Finance Minister P Chidambaram said the government has accepted most of the recommendations of the Standing Committee.
The NPS, beneficial for employees in the long run, is based on the principle that "you save while you earn" especially for retirement period and is mainly for those who have a regular income, he said.
The corpus of the NPS having 52.83 lakh subscribers (including those of 26 state governments) was about Rs 35,000 crore.
The bill also seeks to grant statutory status to the Pension Fund Regulatory and Development Authority.
"....Rs 35,000 crore should not be used by unstatutory authority...All this Bill does is make unstatutory authority (into) a statutory authority," Chidambarm said, adding the statutory authority will have powers to penalise.
The bill would also provide subscribers a wide choice to invest their funds for assured returns, like opting for government bonds as well as in other funds depending on their capacity to take risk.
The subscriber seeking minimum assured returns would be allowed to opt for investing funds in such scheme providing minimum assured returns as may be notified by the Authority.
The bill seeks to empower PFRDA to regulate the NPS. Further withdrawals will be permitted from the individual pension account subject to the conditions, such as, purpose, frequency and limits.
The bill was referred to the Standing Committee twice -- in 2005 and 2011.
The bill provides for 26 per cent foreign investment in pension sector or as may be approved for insurance sector, whichever is higher. It also provides that at least one of the pension fund managers shall be from the public sector.
The legislation also provides for establishment of a vibrant Pension Advisory Committee with representation from all major stakeholders.
PFRDA was established by the government in August, 2003.
The government through an executive order later in October mandated PFRDA to act as a regulator for the pension sector.
The mandate of PFRDA is development and regulation of pension sector in India.
The Standing Committee recommendation which has not been accepted relates to repayable advance, as according to the government, it will convert the account into an overdraft account.
The NPS has been made mandatory for all the central government employees (except armed forces) entering service with effect from January 1, 2004. It has been launched for all citizens of the country including unorganised sector workers, on voluntary basis, from May, 2009.
In order to effectively invest and manage huge funds belonging to a large number of subscribers and to ensure the integrity of NPS, creation of a statutory PFRDA with well defined powers, duties and responsibilities is considered absolutely necessary and would benefit all NPS subscribers, the Finance Ministry later said in a statement.