Govt to pitch for 100% FDI in pension sector

“It is a critical sector and there is no question of allowing 100 per cent FDI in the sector. The issue has not even been discussed with the UPA in any of the meetings,” Left leaders had stated. In fact, the Left had earlier even opposed the entry of foreign players in the sector.

However, the government seems determined to push ahead the reforms in the pension sector. The Central Record-keeping and Accounting Agency (CRA), which will be the “nerve centre” of the new system, is likely to be put in place in the next four to five months. It is understood that about half a dozen entities, including NSDL, CDSL, UTI-ISL, SHCIL and the US-based Principal Group, have shown an urge to operate as CRA.

Highlighting the significance of the new scheme, Sinha said that the government’s pension liabilites touched Rs 23,158 crore in the fiscal 2003-04, which is 13 per cent of the total tax-revenue. He said pension payments gobble up about 10 per cent of the revenue receipts of the states as compared to three per cent during the 1980s.

The new system does not assure guaranteed returns. “There will be severe penalties, that may be imposed by the PFRDA, if there is any deliberate misdemeanour by the PFMs,” Sinha said. The quantum of the penalty would be fixed by the regulator, he added.

The new scheme, initially for the civil servants who joined after January 1, 2004, will move away from the defined benefits system to the defined contribution mode, while providing flexibility to employees to choose fund managers and schemes. There would be 10 per cent (of the salary) contribution both from the employers and employees and there would be broadly three schemes — equity, debt and balanced funds.

Meanwhile, five states, including Rajasthan, Tamil Nadu, Andhra Pradesh, Chattisgarh and Himachal Pradesh, have already notified the scheme and others like Orissa, Goa, Uttar Pradesh and Kerala have evinced an interest in joining the scheme.