Government may hike FDI limit in pension sector to 74%: Report

The government may hike the foreign direct investment (FDI) limit in the pension sector to 74% in line with the FDI cap raised recently in the insurance sector. According to a report by PTI, an amendment to Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013 seeking to raise an FDI limit in the pension sector may come in the monsoon session or winter session depending on various approvals. The move is expected to further expand the reach of the government’s pension scheme- the National Pension Scheme (NPS). In addition, as pension funds invest in assets with long term maturities, the increase in FDI limit is expected to give a fillip to infrastructure projects which in turn could give a much-needed push to the economic growth of the country.

Moreover, the amendment Bill may contain the separation of NPS Trust from the PFRDA. The intent is to keep NPS Trust separate from the pension regulator. It might be and managed by a board of 15 members and they are likely to be from the government. Currently, the FDI in the pension fund is capped at 49 per cent.

NPS is a voluntary retirement scheme governed by Pension Fund Regulatory and Development Authority (PFRDA) where an individual makes contributions during her or his working life. The fund accumulated during working life is used for regular income after retirement. NPS is, however, mandatory for the Central Government employees with effect from 1st Jan 2004 which replaced the earlier defined benefit pension. One of its unique selling propositions is the fact that it is one of the lowest cost pension schemes in the world.

NPS Trust is the registered owner of all assets under the NPS architecture which is held for the benefit of the subscribers under NPS. Pension Funds receive and manage the contributions made by subscribers through various schemes under NPS. The guidelines for pension funds are specified by the PFRDA and they work under the directions of the NPS Trust.

The report states that 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.

Last month, Parliament approved a Bill to increase FDI limit in the insurance sector from 49 per cent to 74 per cent. The Insurance Act, 1938 was last amended in 2015 which raised FDI limit to 49 per cent, resulting in a foreign capital inflow of Rs 26,000 crore in the last 5 years. It was in 2015 when the government hiked the FDI cap in the insurance sector from 26% to 49%. Life insurance penetration in the country is 3.6% of the GDP, way below the global average of 7.13%, and in the case of general insurance, it is even worse at 0.94% of GDP, as against the world average of 2.88%. FDI in the insurance sector is expected to increase insurance penetration in the country.

(With PTI inputs)