Money9 Edit | Hike in FDI limit in pension sector a welcome move, but greater due diligence required

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Reforms are the flavour of the season and the pension sector is no exception. The government is likely to hike the foreign direct investment (FDI) limit in the pension sector to 74% and a Bill in this regard is expected to come in the Monsoon session of Parliament. Currently, the FDI in the pension fund is capped at 49%.

Last month, Parliament approved a Bill to increase FDI limit in the insurance sector from 49% to 74%. The Insurance Act, 1938 was last amended in 2015 which raised FDI limit to 49%, resulting in foreign capital inflow of Rs 26,000 crore in the last 5 years.

The amendment Bill may contain the separation of NPS Trust from the Pension Fund Regulatory and Development Authority (PFRDA), according to media reports. 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. The idea behind this is said to be to keep the NPS Trust separate from the pension regulator.

On the matter of control, there is a need for wider consultation with industry players before rushing into legislation. There should be clarity on Indian ownership and Indian control. Pension is a long-term strategic financial asset-based industry and socially sensitive, especially in a country like India. Hence, any ownership will and should be scrutinised. However, foreign investments should only bring further transparency in the sector.